Outfront 1Q 2017: Live by National, Die By National

Outfront CEO Jeremy Male summarized first quarter 2017 performance with this quip:  “Everything in our business is going well with the exception of national billboard advertising.”  Outfront is more dependent on national advertising than Clear Channel or Lamar.  National advertising accounts for 50% of Outfront’s business so a drop in national advertising has a big impact.    Here are the highlights from the earnings call:

  • Organic revenue declined $7 million (2.2%) to $328 million during the first quarter of 2017  US billboard revenue was down 1.4% as lower national revenues offset increased local revenue.  Transit revenue was off 3.2% reflecting dependence on national advertising.  The declines were due to lower national advertising.  The company kept rates the same but occupancy fell during the quarter.  Male and CFO Donald Shassian said the second quarter is expected to be weak as well.

 

  • Cashflow (OIBDA) was down $8 million (9%) to $80 million during the first quarter of 2017 due to reduced revenues.  Expenses were flat.  CFO Donald Shassian said that in January the company implemented a cost savings program to reduce $16 million in sales, operations and general and administration expense.

 

  • Outfront extended its term debt and revolver maturities for three years and now has no substantial debt maturities until 2022.  Bet Clear Channel Outdoor wishes it had Outfront’s balance sheet.

 

  • The company spent $16 million on capital expenditures during the second quarter.  It converted 17 static billboards to digital in the US and 6 static billboards to digital in Canada.  Outfront’s executives said that capital expenditures were 5% of revenue for the quarter.  Growth expenses were 3.5% of revenue.  Maintenance capital expenses were 1.5% of revenue.  Capital expenditures are still budgeted at $70 million for 2017.

 

  • Debt/Cashflow ticked up to 4.9 during the second quarter.  The company’s goal in to reduce Debt/Cashflow to 3.5-4.0 with debt paydowns and improved cashflow.

Insider’s take:  Outfront’s weak quarter reflects a drop in national brand advertising.  Leverage is up slightly but the company is in better financial shape with the extension of debt maturities till 2022.  Interesting to see Outfront’s executives say that maintenance capexp is 1.5% of revenue.  Insider has long felt that some adjustment to cashflow should be made for maintenance capital expenditures.  Billboards last a long time but not forever.


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