What should your annual capital expenditures be excluding large one-time acquisitions?  We’ve heard OUTFRONT’s CFO Matt Siegel mention that OUTFRONT spends approx 5% of revenue on capital projects on investor calls.  Look at this analysis prepared by Jeff Seddon of Moorgate Capital Partners.   Capital spending (excluding acquisitions) averages 5.75% at the the public out of home companies.  Clear Channel is the lowest with capital spending equal to 3.9% of revenues due to high leverage.  Clear Channel uses most of its cashflow to service debt.  Lamar is the highest with capital spending at 8.1% or revenue because it has low leverage so can pursue as many digital sign conversions as it can get permitted.

Many Billboard Insider readers operate closely held companies which avoid debt and finance new projects only from internally generated cash.  In this case the amount of money they can spend on capital projects depends on how big payroll is.  Consider a small home company with with revenue of $200,000,  lease costs of 20% of revenue and miscellaneous costs (electricity, accounting, insurance) of 10% of revenue.  There is a direct tradeoff between payroll expenses and capital spending.  If payroll is $100,000 then the owner can spend $40,000/year or 20% of revenues on capital projects.  If payroll is $130,000 then the owner can only spend $10,000 or 5% of revenue each year on capital projects.  See the numbers below.

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