After experiencing years of dramatic advertising revenue growth, Univision Communications hit an ad sales pothole during the fourth quarter of 2004, leading Wall Street analysts to worry that a rocky road is ahead for the company in the new year.
The dominant Spanish-language TV network group experienced several years of record double-digit advertising revenue growth before posting a 20 percent drop in the fourth quarter of 2004 compared with the same time frame in 2003.
In other Univision ad sales news, Ron Furman, executive VP of network sales and marketing for Univision Communications, who has been with the company since April 1998, will leave the company.
“It’s like they hit some black ice in the road,” said Lee Westerfield, equity analyst for New York investment banker Harris Nesvid. “The question is what will happen [at Univision] in the first and second quarters.”
“There will be some spillover [of the advertising declines] into the first quarter as well,” said David Joyce, senior equity analyst, who follows the company for Miami-based JB Hanauer & Co.
Univision’s fourth-quarter scatter advertising sales drop was due to lower ad revenue from telecommunications, retailing and movie clients. Specifically, AT&T and MCI, two $10 million-a-year TV advertisers, cut back on their respective ad deals during the period.
Univision said it expects its fourth-quarter operating income to be “flat to an increase of mid-single-digit percentages.” This is far off the previous nine months. Operating income for the third quarter, for example, improved 18 percent versus a year ago.
“The difference between the growth rate in the first nine months of the year compared with the growth rate … actually a decline in the fourth quarter … is 50 percentage points,” said Jeff Hinson, chief financial officer of Univision, in a November conference call to equity analysts.
Univision wasn’t alone. Many TV networks-both English-language broadcasting and cable networks-experienced similar advertising declines. Some networks said fourth-quarter scatter program pricing was 5 percent to 20 percent below upfront advertising prices set in May and June 2004. AT&T also made cutbacks on English-language networks.
“These clients are more important to Spanish-language broadcasters because of their viewing base that needs long distance to call overseas to Latin America,” Mr. Joyce said.
For Univision, this was unusual. In other down periods, when English-language networks took a fall, Univision was able to improve ad revenue. Because Univision has been in the still growing niche of Spanish-language TV, advertisers did not cut back. Now analysts speculate Univision could be reaching a critical mass where it might feel more road bumps. A Univision spokeswoman declined to comment further on the advertising issue.
Univision executives said the fourth quarter is just an aberration, that first-quarter ad sales are back on track.
One analyst said Mr. Furman’s departure had nothing to do with the fourth-quarter results. Univision executives reported he did a stellar job in raising the profile of the company among the business community as well as expanding the company’s advertising categories over the past several years.
A Univision spokeswoman confirmed the move but would not disclose the reason.
“He is not leaving because of the revenue shortfall,” said one industry analyst. “He wanted to move up in the organization. But because his bosses are both co-president of network sales and are pretty young, they aren’t going anywhere.” With his successful track record, the analyst said, Mr. Furman could secure a position at a bigger network or one with responsibilities beyond just advertising sales.
While Univision has been growing its advertising revenues for all its platforms, including now radio, it still hasn’t reached parity in getting the same percentage of advertising dollars relative to it’s the consumer expenditures of its Hispanic viewers.
About 3 percent of advertising spending is allocated to Hispanic media, yet Spanish-language consumers represents 8 percent of consumer expenditures and 13 percent of the population. The total Hispanic advertising market currently stands at $3.5 billion per year. Mr. Joyce said it should closer to $5 billion to $5.5 billion per year. Univision alone should be getting $1 billion more in revenue, Mr. Joyce said. n
Jay Sherman contributed to this report.