Stock spotlight: Salem Communications fine-tunes its content
Salem Communications Corp. makes money the “right” way.
The Camarillo company operates a conservative, Christian-themed media conglomerate with 99 U.S. radio stations, a publishing company and several websites, including christianity.com, godtube.com and biblestudytools.com.
“Our plan is to super-serve the audience interested in Christian-themed, family-themed and conservative content,” said Edward G. Atsinger III, the company’s co-founder and chief executive.
Its target audience — adults 35 to 64 years old — can listen to Christian music and conservative talk on the radio, watch Christian videos online and get news in a format that will inform but not offend, Atsinger said.
“Monica Lewinsky was an example,” Atsinger said of the woman with whom President Clinton had a highly publicized affair. “Parents riding in their cars with kids don’t want to hear those gruesome details. You report the facts, but in a way that’s sensitive to the values of our audience.”
Salem syndicates several talk hosts, including Dennis Prager, Michael Medved, Bill Bennett and Hugh Hewitt.
Launched in the 1980s, the company went public in 1999. It survived an advertising slump brought on by the recession and reported profits for the last two years. Salem is careful to inform potential investors that its values are a priority, even beyond the bottom line.
“Our commitment to these values means that we may choose not to switch to other formats or pursue potentially more profitable business opportunities in response to changes in audience preferences,” Salem explained recently in a filing with the Securities and Exchange Commission.
Salem’s 99 radio stations include KRLA-AM (870), KFSH-FM (95.9) and KKLA-FM (99.5) in the Southland.
Last year, the company earned $4.4 million on revenue of $229.2 million.
The latest
This year got off to a slow start, in part because Salem’s conservative listeners were fatigued by the 2012 presidential campaign and disappointed by the election results, Atsinger said. The company’s first-quarter broadcast revenue, mainly from advertisers, fell 1.6% to $43.2 million from $44 million in the same period last year.
Salem more than made up for the broadcast decline through its Internet revenue, sales of streaming services, advertising, DVDs and other products that increased 31% to $9.7 million from $7.4 million.
“The Internet piece of our business is growing more rapidly than we see any kind of flattening or decline on the radio side,” Atsinger said.
Accomplishments
Though executives worried that the Great Recession might do in the economy, Salem survived the financial crisis. In 2009, the company was struggling to refinance its debt in a tight credit market and a 10% downturn in its revenue.
The solution was some painful belt-tightening. Salem stopped contributing to employee 401(k) retirement accounts. It trimmed salaries 5% and management pay 10%. The company laid off employees, allowed talent contracts to expire and didn’t fill vacant positions.
“All of those measures allowed us to have the biggest free cash flow in our history,” Atsinger said.
Salem reduced 2009 operating expenses 24%. Using its reduced expenses to impress lenders, the company refinanced more than $300 million of debt near the end of that year at 9.6% interest.
This year, Salem refinanced its debt at 4.5%. The company used the increased cash flow to increase its quarterly dividend 43%, to 5 cents a share.
Challenges
Broadcast advertising is down, so the company continues to search for new sources of revenue. One potential answer could be its audience’s smartphones.
“People might listen to us on a mobile device as readily as they would their radio at home or in the car,” Atsinger said. “We’re trying to keep up with technological developments ... and to find new ways to grow and generate revenue through advertising.”
Analyst views
Three analysts rate the stock as a buy and one recommends selling it. One of the bullish analysts estimates the stock will reach $11.25 in 12 months.
“While the mixed [first quarter] results were somewhat of a disappointment … we continue to believe that the debt refinance and recent launch of the digital music service should boost Salem’s overall growth outlook and valuation potential in the coming years,” said Eric Wold, an analyst at financial services firm B. Riley & Co.
“Salem is somewhat unique in the radio world with its religious and conservatively themed stations. The company’s high proportion of so-called block programming revenues provides stability in good times and bad,” said analyst Barry Lucas of Gabelli & Co., a financial services company in Rye, N.Y.
