Please ensure Javascript is enabled for purposes of website accessibility

Why Shares of Cumulus Media Inc. Crashed Today

By Timothy Green - Mar 3, 2015 at 1:27PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

What investors need to know about Cumulus's earnings.

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of radio station operator Cumulus Media (CMLS -1.17%) crashed on Tuesday after the company fell short of analyst expectations when it reported its fourth-quarter earnings. By noon, shares were down around 16%.

So what: Cumulus grew revenue by 19.5% year-over-year during the fourth quarter to $329.5 million, but this number came up short of analyst estimates by about $4 million. Almost all of this revenue growth was the result of acquisitions in late 2013: Pro forma revenue, which adjusts for these acquisitions, only grew by 0.3% year-over-year.

Cumulus reported EPS of $0.02 for the quarter, well below the $0.09 analyst were expecting. This is down considerably year-over-year, although a large tax benefit during the fourth quarter of 2013 skews the comparison. Operating income actually increased year-over-year, while the interest expense declined.

Broadcast advertising revenue, which makes up around 90% of Cumulus's total revenue, rose 12.2% year-over-year during the fourth quarter, but fell by 6.8% on a pro forma basis. Digital advertising and political advertising both rose substantially, making up for the pro forma decline.

Now what: Content costs rose 55% year-over-year, far faster than revenue, which likely contributed to the earnings miss. The fourth quarter marks an improvement compared to the fourth quarter of 2013, where interest payments completely wiped out operating profit, but Cumulus is still saddled with an enormous $2.5 billion of debt.

This debt makes it difficult for Cumulus to turn much of a profit. Much of this debt is tied to the $2 billion Cumulus spent on acquisitions in 2011, which led to both rapid revenue growth and big interest payments. Cumulus's big earnings miss hasn't given investors much confidence that the company can overcome its expensive capital structure, and the stock was punished as a result.

Timothy Green has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Cumulus Media Inc. Stock Quote
Cumulus Media Inc.
CMLS
$8.43 (-1.17%) $0.10

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
379%
 
S&P 500 Returns
123%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/09/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.