Top Analyst: TEGNA (TGNA) cost reduction efforts should support profitability
2min read TEGNA delivered robust Q3 results, reporting revenues of $807 million that marginally exceeded analyst expectations. The company also posted adjusted EBITDA of $270 million, surpassing estimates, and adjusted earnings per share of $0.94, excluding retention and workforce restructuring costs. On a GAAP basis, EPS stood at $0.89.
Barrington's Patrick Sholl broke down the company's progress and outlook in a research note earlier today, delivering a number of core insights.
Despite a softer outlook for 2024 political advertising revenues, the company remains committed to profitability through strategic cost reductions and technology investments.
Key Highlights from the Quarter
TEGNA's Q3 performance reflects its strong operational execution in a challenging broadcast environment. Revenue growth has been supported by a focus on technology-driven improvements in ad revenue generation, particularly through Premion, its over-the-top (OTT) advertising platform. The company’s portfolio of stations, primarily located in large markets, continues to perform well, leveraging its scale to maintain a competitive edge.
Fourth-quarter guidance projects a revenue increase of 19-21 percent, driven by political ad contributions that are expected to total $375 million for the full year. While this falls slightly short of earlier estimates of $384 million, the outlook reflects solid underlying trends in TEGNA's core business. Operating expenses, excluding one-time items, are expected to rise by 1-3 percent compared to the prior year, driven largely by Premion and programming costs.
Political Advertising Revenue Outlook
Political advertising has traditionally been a significant driver of revenue for broadcasters during election cycles. While TEGNA's full-year projection for $375 million in political ad revenue is slightly below initial estimates, it still represents a strong contribution to overall revenues.
The slight shortfall may be attributed to changes in campaign spending patterns or regional variations in political activity. However, this impact is partially offset by TEGNA's continued investments in technology and a diverse revenue base.
Profitability and Shareholder Returns
TEGNA's profitability remains a key strength, underscored by its ability to maintain a solid leverage ratio of 2.8x. Even with an accelerated share repurchase program, the company expects to end the year with leverage below 3x, demonstrating its prudent financial management.
Furthermore, TEGNA's $0.50 dividend, yielding 2.6 percent, underscores its commitment to returning value to shareholders.
Cost reduction efforts, including workforce restructuring and operational efficiencies, are expected to support profitability moving forward. These initiatives are particularly critical as the broadcast industry navigates an evolving regulatory landscape and shifts in viewer behavior.
Regulatory Considerations and Strategic Outlook
TEGNA's strong positioning in large markets and its investment in digital and technology initiatives leave it well-placed to adapt to regulatory changes that may emerge under a new administration. A more supportive regulatory approach, as suggested by analysts, could further enhance the viability of local broadcast operations and open new revenue opportunities.
The company’s strategic focus on digital advertising through Premion and investments in improving ad revenue generation are likely to yield long-term benefits. Additionally, its stable financial position and continued efforts to optimize costs should help mitigate any short-term challenges posed by softer political ad revenue in 2024.
Conclusion
TEGNA's Q3 results highlight its operational resilience and strategic foresight in navigating a complex and dynamic broadcast environment. While political advertising revenues are expected to be slightly softer than previously forecast, the company’s cost management initiatives and investments in technology position it well for sustained profitability and growth.
With a stable leverage profile and a healthy dividend yield, TEGNA remains an attractive option for investors seeking exposure to the broadcast sector. The company's adaptability to regulatory and market shifts will be critical to its continued success in the evolving media landscape.
