You gotta hand it to the folks running E.W. Scripps (NYSE:SSP). They're not afraid to take some chances and explore new avenues to growth.
While I'd imagine that a lot of people still think of the company as primarily a newspaper operator, management has turned toward markets such as cable TV and the Internet to fuel growth. And so far, at least, it's working.
Third-quarter results were, to be charitable, a bit messy. Operating revenue grew 19%, but only 15% if Shopzilla is treated on a pro forma basis as though the company owned it last year. While reported operating income climbed almost 16% and reported net income rose almost 48%, those numbers are a bit deceiving. Included in them was $40 million related to ending a newspaper joint operating agreement and $0.03 per share for higher depreciation expenses in Denver. Looking at income from continuing operations, you find about 2% growth over the prior year.
On a decidedly positive note, Scripps saw a lot of growth from the segments most likely to carry future growth. Revenue was up 25% in the networks business, as both Food Network and HGTV showed 20% top-line growth. Shopzilla more than doubled its revenue from last year, and the Shop At Home business posted 25% growth. By comparison, newspaper revenue was up 5% and broadcast revenue fell 10%. Likewise, both the network and Shopzilla units showed good segment profit growth while the newspaper and broadcast businesses were down.
This is, by and large, a creative and proactive management team that isn't afraid to take risks, as witnessed by the $525 million purchase of Shopzilla. Of course, eBay (NASDAQ:EBAY) shelled out $620 million for Shopping.com around the same time, so it's not exactly a unique risk. Regardless, I like these sorts of moves. It's true that well-run newspapers and TV stations can be cash cows, but it's also true that they can be volatile -- as we've seen lately from tough year-over-year comparisons caused by heavy political ad spending last year.
I know that the P/E looks expensive, but Scripps happens to be a quality growth idea right now. What's more, there aren't really a lot of peers. Companies like Gannett (NYSE:GCI), Knight Ridder (NYSE:KRI), Hearst-Argyle (NYSE:HTV), and Liberty Media (NYSE:L) overlap in certain businesses, but they don't have the same broad-based media platform. Tribune (NYSE:TRB) might be a fair comp, but it's certainly not growing as fast as Scripps is. I think that combination of breadth and growth is worth a bit of a premium, though I'd leave it to each Fool to decide just how much of a premium is fair.
For more Foolish thoughts on media:
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
