Lamar Hit by Rising Rates – Analyst Blog

Lamar Advertising Company (LAMR) reported results for the first quarter of 2010 with a net loss per share of 27 cents versus 24 cents in the year-ago quarter. However, it did not cross  the Zacks Consensus Estimate of a net loss per share of 30 cents. Net loss increased to $24.9 million from $21.8 million in the first quarter of 2009. The increase in net loss was based on higher interest expense.

Net revenues dipped to $244.1 million from $247.2 million in the corresponding period of 2009, representing a decrease of 1.3% year over year. The decline was driven by a 5.5% and a 1.7% decrease in transit and billboard revenues, respectively, which in turn were negatively affected by the difficult economic condition.

As a percentage of revenues, operating expenses dropped by 280 basis points. As such operating income increased to $10.8 million from $3.9 million in the year-ago quarter.

Interest expense grew $12.9 million from $36.4 million in the first quarter of 2009 to $49.3 million in the first quarter of 2010 primarily driven by an increase in interest rates resulting from refinancing of the senior credit facility in 2009. Thus, free cash flow also dropped to $36.4 million from $44.9 million in the corresponding period of 2009.

Cash & cash equivalents decreased to $33.0 million from $112.2 million at the end of December 31, 2009, partially due to $79.8 million of debt repayment.

Capital expenditures excluding acquisitions were $8.3 million and in 2010 management expects capital expenditures to be in the range of $35 million – $40 million. For the second quarter of 2010, net revenue is expected to be approximately $282 million, an increase of 2.5% year over year.

We are optimistic on Lamar’s growing national presence, but doubtful about  the near-term outlook of the advertising industry as a whole. Thus, we reiterate our Neutral recommendation.