After reviewing Billboard Insider’s 10 year financial analysis of Lamar, OUTFRONT and Clear Channel Outdoor, out of home investment banker Jim Johnsen writes, “Thanks for interesting analysis Dave. How about looking at an ROA and an ROE statistic as well as Free cash flow per share? That would give us a sense of whether they are investing shareholders money wisely or not.”

A great question Jim.  To evaluate the quality of the capital spending of the public out of home companies, Billboard Insider looked at two measures.

Cashflow (EBIDTA) to Assets

A great way of grading the quality of an out of home company’s investments is to compute the ratio of cashflow (Earnings before interest, depreciation and amortization or EBIDTA) to assets.  We like cashflow (EBIDTA) because it includes corporate overhead.  Cashflow/Assets tells you how much cash each $1 of a company’s assets generates each year.  A company with a better investing strategy will generate more cash out of its assets than a company that invests poorly.   Here are the figures for Lamar, OUTFRONT and Clear Channel Outdoor for the past 10 years.

• Returns at all three companies dipped during covid.  Lamar’s returns have recovered the fastest.
• Lamar has generated the highest cashflow return on assets each year for 10 years.  The company has averaged a 15% return on assets during that time.  Looks to Billboard Insider like Lamar will be at or above 15% for the full year 2023 based on strong performance during the first 9 months.
• OUTFRONT and Clear Channel Outdoor come in at 9% and 8% respectively.  OUTFRONT’s transit assets and Clear Channel Outdoor’s international investments have been a drag on cashflow at each company.

Asset Impairment expense net of gains from selling assets.

A second way of evaluating the quality of a company’s investments and capital spending is to look at net asset impairments.  This consists of gains from the sale of assets minus the sum of losses from the sale of assets and asset writedowns.  Net impairments is the equivalent of management admitting that it put money into something which isn’t worth as much today as when the money was spent.  Think of it as an oops-we-didn’t-spend-money-wisely admission.  Here are the figures for Lamar, OUTFRONT and Clear Channel Outdoor for the past 10 years.

• Lamar has achieved a net gain of $60 million from selling assets over the past 10 years.  The company’s only significant impairment charge was $7 million in connection with the sale of the Puerto Rican billboard plant in 2018.  Management hasn’t had to admit capital spending mistakes by writing down assets.
• OUTFRONT has written $683 million in asset impairments over the past 10 years.  The most significant impairment was a $523 million writedown on transit assets in 2023.  The biggest previous impairment was $103 million relating to the sale of OUTFRONT’s Latin American operations to JCDecaux in 2015.
• Clear Channel Outdoor has taken impairments expense each year for the last 10 years.  Impairments total $381 million over the past 10 years.  Total Clear Channel capital spending was $1.8 billion over that period so asset writedowns have equaled almost one-sixth of the company’s capital spending since 2014.

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