Belo Cautiously Optimistic About 2011

The financial upswing that started late last year at Belo continued through the second quarter with revenues, cash flow and cash flow margins all improving.

But while the company's top brass remains cautiously optimistic (optimistically cautious?), they're keeping enthusiasm in check.

"It's too early to get into what we see for next year," Belo President-CEO Dunia Shive responded to one analyst's fishing expedition for 2011 prospects. "It depends on the pace of the economic recovery. I wouldn't call it a hockey stick. It's way too soon to predict what 2011 will look like."

Some economic forecasters see potential for a double-dip recession as the GDP showed a marked decline in the second quarter and consumer sentiment declined in July, though less than projected.

A possible bellwether: Belo's Phoenix stations. Phoenix and Arizona have been among the hardest hit by the recession, particularly the housing market downturn. Factor in the double-whammy of the immigration imbroglio and subsequent boycott and it might seem logical that the economy there continues to head south in the proverbial handbasket.

In fact, Belo's seeing some encouraging numbers from its two Phoenix stations -- KASW, a CW affiliate, and KTVK, an independent.

"There are some regions where our stations have performed better than others," Shive noted. "Phoenix, which was very soft for the last several quarters, bounced back in the second quarter."

Despite the boycott, or perhaps in part because of it and associated political issue advertising, "we had the best quarter in Phoenix we've had in a long time," she said.

Overall station group core spot ad revenues grew 14% for the quarter, led by a 51% increase in auto (the lead category at roughly 21%). Political climbed nearly 32% from the same quarter last year, but declined compared to the first quarter. That was largely the result of the timing of primaries, Shive said.

With significant political races in many of its markets, Belo could see political revenues continue improvement in the third quarter.

Even there, however, Shive was restrained: "It's too soon to try to predict what we will see."

She acknowledged that third-quarter pacings, particularly political, are encouraging. However, with business being booked earlier, there's potential for the pacing numbers to slide, she cautioned.

One upside of the improving economy is improving free cash flow for the company. Shive said Belo is using all free cash to pay down debt and since the first of the year has reduced its debt load $39 million to $990 million.

Some analysts considered Belo to be at risk of default last year in the depth of the recession when its debt load was over $1 billion.

Shive noted that the company is well within its senior debt covenants. The company's second-quarter leverage ratio stood at 4.7 times, down from 5 times in the first quarter, according to Carey Hendrickson, SVP-CFO-treasurer.

The company's heading into retransmission talks with Time Warner and Dish Network. Shive resisted persistent proddings to project what impact new retrans agreements might have on 2011 revenues. Indeed, she resisted offering any projections for 2011. She did note, however, that the current agreement with Time Warner is 10 years old.

Hendrickson said second quarter 2010 retrans revenues hit $11.7 million versus $11.4 million in the same quarter last year.