Lamar Q3 Earnings Miss but Revenues Beat Estimates - Analyst Blog

Lamar Advertising Co. (LAMR), which is in undergoing a formal transformation to a REIT (real estate investment trust), reported third-quarter 2014 earnings of 37 cents per share, missing the Zacks Consensus Estimate by a penny. Following this news, shares of Lamar dipped 0.07% during the regular trading session on Nov 6.

Nevertheless, the figure came above the prior-year quarter earnings of 18 cents per share. This was attributable to notable improvement in revenues and operating income.

Adjusted FFO for the quarter came in at $1.14 per share, up from $1.02 in the prior-year quarter.

Quarter in Detail

Net revenues for the reported quarter increased 4.3% year over year to $335.0 million and exceeded the Zacks Consensus Estimate of $333 million.

Operating income upped 28% year over year to $86.0 million. Also, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) rose 5.4% year over year to $153.4 million.

During the quarter, Lamar disclosed the buyout of a regional firm – Marco Outdoor Advertising, Inc. – to strengthen its presence in the New Orleans region. With this acquisition, the company added over 150 bulletin faces to its portfolio.

Lamar had liquidity of $319.1 million at quarter end, of which $291.1 million was available under its revolving senior credit facility and $28.0 million in cash and cash equivalents.

Free cash flow in the reported quarter increased 18% year over year to $101.1 million. Lamar defines free cash flow as adjusted EBITDA less interest, net of interest income and amortization of financing costs, current taxes, preferred stock dividends and total capital expenditures.

REIT Conversion Update

In October, Lamar stated that the Securities and Exchange Commission has declared effective the company's registration statement, related to its merging into Lamar Advertising REIT Company. Moreover, Lamar disclosed a shareholders meeting on Nov 17, 2014 to vote on this merger.

Guidance

For fourth-quarter 2014, management expects adjusted net revenue in the range of $323 million to $326 million, rising 2.5% to 3.5% on a pro-forma adjusted basis.

Our Take

Although an earnings miss is not encouraging and market softness remains a concern, the company is gradually returning to the growth track on the back of improving operational performance. Moreover, Lamar is further expanding its localized billboard advertising businesses through a combination of organic growth and strategic acquisitions, which bodes well for long-term growth.

Lamar currently has a Zacks Rank #3 (Hold). Investors can consider stocks like Marriott International, Inc. (MAR), Hilton Worldwide Holdings Inc. (HLT) and Intercontinental Hotels Group plc (IHG), which are stocks from the Consumer Discretionary industry. All these stocks carry a Zacks Rank #2 (Buy).   

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.