Clear Channel Executives have been making much of the company’s initiative to cut $32 million in permanent expenses.  This equates to 1-2% of Clear Channel’s total expense and 5-6% of Clear Channel Outdoor’s SG&A expense.  The cuts come on top of $100 million in temporary cost savings during the second quarter of 2020.    $20 million of the permanent cuts come from international and $12 million comes from from Americas.

Here’s how the cuts compare to Clear Channel Outdoor’s 2019 expenses.  We computed the cuts as a % of 2019 expense to remove the temporary distortions caused by covid.  We also allocated Clear Channel Outdoor’s overhead to the international and americas based on revenue.  This makes comparisons with OUTFRONT and Lamar easier as well because they include overhead in SG&A expense.  JCDecaux financials are in Euros.

Three observations.

Most of the cuts are International because that’s where most expenses are.  International operations make up 60% of the company’s total expenses and 63% of the cuts.

Americas margins aren’t so bad.  Clear Channel Outdoor Americas generated a 35% cashflow margin in 2019.  The margin is less than the 43% cashflow margin for Lamar in part due to the fact that Clear Channel Americas derives 71% of revenue from the high margin billboard business while Lamar gets 88% of revenue from the high margin billboard business.

International is underperforming.  Clear Channel Outdoor’s international business generated a cashflow margin of only 9% in 2019.  Clear Channel executive will say this is because international is a transit and street furniture business with higher costs.  JC Decaux achieved a 20% cashflow margin for a transit and street furniture business in 2019.  Why can’t Clear Channel Outdoor?

Insider’s take:  If you are a Clear Channel Outdoor investor wouldn’t you want the company’s execs focused on a 35% cashflow margin US business as opposed to an underperforming 9% cashflow margin international business.

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