Lamar Advertising Company reported that revenue was up 6% in the second quarter and earnings were also in positive territory. Quarterly revenue reached $202,529,000 compared to $191,788,000 in the same period of 2001. The figures include income from acquisitions in the past 12 months. When revenue is examined for billboards that have been owned for a year or more, revenue was up 1.7% in the first quarter of 2002 over the same quarter last year.
Also during the latest quarter, Lamar spent $32 million acquiring smaller billboard businesses, paying about equally with cash and its common stock. This brings total acquisitions in the first half of the year to $115 million. Management reports that its acquisition prices are equal to approximately ten times “forward EBITDA”, referred to as 10X. This price multiple is based on management’s estimates of how much EBITDA (earnings before interest, taxes, depreciation and amortization) would be generated in the year following the purchase. The overall group of acquisitions involved the payment by Lamar of about one half cash and the other half common stock of the company. Many of the acquisitions were made with stock that was trading near $40 per share. With the stock price down below $30 during July and August 2002, new acquisitions may require the issuance of more shares. However, Lamar has a strong war chest of cash generated by its high cash flow. Cash at the end of the first quarter totaled $55 million.
The company’s billboard occupancy improved in the second quarter of 2002 compared to the previous year. Occupancy of 30-Sheet Posters had dropped from about 66% in 2000 to 64% in 2001, due to the weak economy. A slowly improving economy and lower prices boosted the occupancy level back to 66% in the second quarter of 2002. During most of the 1990s, occupancy of Posters was in the low- to mid-70% range. Bulletins have traditionally had higher occupancy levels in the mid-80% area. These larger signs held up better in the recession, declining to about 75% occupancy in 2001. They were at this same level at the end of June 2002. Management also reported that renewals of expiring contracts for Bulletins are still running about 90%, which is the normal level. Approximately half of the company’s Bulletins are highway signs and half are referred to as “general coverage.” Highway contracts are typically written for 12 months while general coverage is more often a 6-month period.
The blend of local and national advertisers has also remained stable for Lamar. About 86% of the company’s revenue comes from local accounts and about 14% from national advertisers. Local advertisers include hotels and motels that use highway permanent paints (Bulletins) to attract customers from highways. The company’s largest national customer is increasing its spending significantly with Lamar in order to expand awareness with highway travelers. Cracker Barrel Restaurants increased spending 17% at Lamar this year versus last year. The next largest customers, all increasing or maintaining spending levels, are McDonalds Corp., NexTel, Holiday Inn, and Miller Brewing.
During a conference call with securities analysts on August 8, 2002, a participant asked if the company was taking down any signs to better manage its inventory. The caller suggested that some billboard operators are paring their plant to limit the number of signs that are difficult to sell. Management at Lamar stated that such culling is not necessary because inventory is managed daily. Signs are lost to eminent domain takings, traffic pattern changes, and various other events that require removal or relocation. Lamar does not pursue any planned thinning of its existing plant.
The outlook by management is not particularly bullish for the outdoor advertising business during the remainder of 2002. The hoped for recovery envisioned in early 2002 has given way to concern that the economy is not in a sold rebound phase. This is evident in the swooning stock market, which tends to foreshadow economic trends. Revenue and earnings at Lamar are expected to be in “positive territory” during the third quarter of the year, although the growth rate may not be strong. The remainder of the year is difficult to forecast at this point. However, management continues to be optimistic that the long term future for Lamar and for the outdoor advertising industry will be positive.