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Salem Communications Preaches Patience
Thursday June 16, 1:06 am ET
Salem Communications Preaches Patience on Buys as Shares Hit Two-Year Low
NEW YORK (AP) -- Many on Wall Street have a message for religious radio broadcaster Salem Communications Corp.: Thou shalt not acquire.
The Camarillo, Calif., company dominates Christian radio at a time when that genre is growing dramatically, and Salem enjoys growing revenue per station. Yet its shares have fallen about 23 percent so far this year, hitting a two-year low and shaving about $116 million off its market capitalization.
In May, Salem -- the sixth-largest U.S. radio operator in terms of stations owned -- warned that second-quarter earnings would be hurt by startup costs for new stations. Salem has planned to add 13 stations, net, since the end of 2003 and reformatted other stations.
Critics say the company needs to take a breather from buying underperforming stations in the hope of quickly turning them around -- a strategy some say has obscured the growing revenue of the stations it already owns.
Before reverberations from the latest round of acquisitions, operating income rose by more than 30 percent for much of 2004, increasing 34 percent to $11.9 million in the second quarter of last year. In the most recent quarter, which ended in March, operating earnings rose 15 percent to $9 million, according to the company.
"Investors are just fed up," said analyst Jonathan Jacoby of Banc of America. "No one has a real understanding of what's going on."
In a May 6 research note, Jacoby addressed management more bluntly: "Stop making acquisitions."
Of Salem's stations, 43 are in the (generally AM) Christian Teaching and Talk format; 15 are contemporary Christian music FM stations, branded "the Fish;" 32 are news talk; and the balance are sundry genres, including oldies, Southern Gospel and a Hawaiian music station.
Salem's stock has fallen from a 52-week high of $31.45 last June to levels not seen since April 2003. Shares rose modestly after the company boosted second-quarter revenue expectations June 6 and closed Wednesday at $19.97.
Critics of Salem's acquisition policy point to company-specific and broader trends that benefit the company but aren't showing up on the bottom line or in the share price.
Salem gets more than half of its revenue by selling spot advertising in the same manner as other traditional radio and media companies. But a significant chunk of revenue comes from selling blocks of air time on its Christian Teaching and Talk stations to ministries and commentators, such as Laura Ingram, Bill Bennett and Dr. James Dobson.
"Rather than having to pay the talent, the talent pays us," said Salem's Davis, who himself recited Bible stories on air as a child.
Salem's block programming fees have risen steadily over the last few years, cushioning against an advertising blight that has hurt other traditional media.
According to radio ratings company Arbitron Inc., Christian music radio's audience share more than tripled between fall 1998 and winter 2005, the latest period for which data are available -- a growth clip rivaled only by Spanish-language radio stations.
Even the acquisition policy -- buying fixer-uppers that offer more potential for margin growth -- could work in the future when used sparingly, critics say.
"Currently about half the properties have subpar operating margins," said Stanford Financial analyst Fred Moran. "Until they get 70 percent of properties up to reasonable operating margin levels, they really shouldn't make any more acquisitions."
Salem Communications Preaches Patience
Thursday June 16, 1:06 am ET
Salem Communications Preaches Patience on Buys as Shares Hit Two-Year Low
NEW YORK (AP) -- Many on Wall Street have a message for religious radio broadcaster Salem Communications Corp.: Thou shalt not acquire.
The Camarillo, Calif., company dominates Christian radio at a time when that genre is growing dramatically, and Salem enjoys growing revenue per station. Yet its shares have fallen about 23 percent so far this year, hitting a two-year low and shaving about $116 million off its market capitalization.
In May, Salem -- the sixth-largest U.S. radio operator in terms of stations owned -- warned that second-quarter earnings would be hurt by startup costs for new stations. Salem has planned to add 13 stations, net, since the end of 2003 and reformatted other stations.
Critics say the company needs to take a breather from buying underperforming stations in the hope of quickly turning them around -- a strategy some say has obscured the growing revenue of the stations it already owns.
Before reverberations from the latest round of acquisitions, operating income rose by more than 30 percent for much of 2004, increasing 34 percent to $11.9 million in the second quarter of last year. In the most recent quarter, which ended in March, operating earnings rose 15 percent to $9 million, according to the company.
"Investors are just fed up," said analyst Jonathan Jacoby of Banc of America. "No one has a real understanding of what's going on."
In a May 6 research note, Jacoby addressed management more bluntly: "Stop making acquisitions."
Of Salem's stations, 43 are in the (generally AM) Christian Teaching and Talk format; 15 are contemporary Christian music FM stations, branded "the Fish;" 32 are news talk; and the balance are sundry genres, including oldies, Southern Gospel and a Hawaiian music station.
Salem's stock has fallen from a 52-week high of $31.45 last June to levels not seen since April 2003. Shares rose modestly after the company boosted second-quarter revenue expectations June 6 and closed Wednesday at $19.97.
Critics of Salem's acquisition policy point to company-specific and broader trends that benefit the company but aren't showing up on the bottom line or in the share price.
Salem gets more than half of its revenue by selling spot advertising in the same manner as other traditional radio and media companies. But a significant chunk of revenue comes from selling blocks of air time on its Christian Teaching and Talk stations to ministries and commentators, such as Laura Ingram, Bill Bennett and Dr. James Dobson.
"Rather than having to pay the talent, the talent pays us," said Salem's Davis, who himself recited Bible stories on air as a child.
Salem's block programming fees have risen steadily over the last few years, cushioning against an advertising blight that has hurt other traditional media.
According to radio ratings company Arbitron Inc., Christian music radio's audience share more than tripled between fall 1998 and winter 2005, the latest period for which data are available -- a growth clip rivaled only by Spanish-language radio stations.
Even the acquisition policy -- buying fixer-uppers that offer more potential for margin growth -- could work in the future when used sparingly, critics say.
"Currently about half the properties have subpar operating margins," said Stanford Financial analyst Fred Moran. "Until they get 70 percent of properties up to reasonable operating margin levels, they really shouldn't make any more acquisitions."