We reaffirm our long-term Neutral recommendation on Scripps Networks Interactive Inc. (SNI). The fourth quarter of 2011 was a mixed bag for Scripps Networks. Nevertheless, the company witnessed a solid growth in advertising and affiliate-fee revenue at its flagship Lifestyle Media businesses and higher segment profits. We believe both advertising revenue and affiliate fee revenue will remain healthy in the near future.
Acquisition of a majority stake in the Travel Channel, re-branding of the FLN channel as Cooking Channel, and the divestment of the struggling Shopzilla networks will help the company to maintain its future growth. Partial acquisition of UKTV may also become a catalyst in future. However, we remain concerned regarding the fact that the U.S. economy is still not fully out of the woods. If the U.S. fails to maintain its momentum of economic recovery, both advertising and affiliate-fee revenue of Scripps Networks will suffer.
Scripps Networks is a market leader for Lifestyle Media businesses. We believe strong viewership ratings will definitely help Scripps Networks to improve its advertising revenues. It seems that business enterprises are more inclined toward advertisement spending in order to win consumers. Several enterprises are raising their advertisement budgets. This is benefiting the media companies and Scripps Networks is no exception.
In the previous quarter, Scripps Networks improved with respect to several financial metrics compared with the year-ago quarter. Total revenue was up 10%, total segment profit was up 14% and net income from continuing operations was up 15%. Advertising revenue was up 11% year over year. We believe this trend will continue in the near future. The company entered into a distribution agreement with AT&T Inc. (T) for its lifestyle networks, which will be viewed by U-verse network subscribers of AT&T.
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