(SNI) Scripps Networks Interactive Announces Share Repurchase

Lifestyle media company Scripps Networks Interactive Inc. (SNI) recently initiated a share repurchase plan. The Board of Directors of Scripps networks have authorized the buyback of $1 billion of its common outstanding shares. According to the plan, the company has already bought $300 million worth of shares from The Edward W. Scripps Trust, which is the controlling shareholder of Scripps Networks.

Even after the repurchase, the Edward W. Scripps Trust will remain as the single largest shareholder of the company with 26% controlling stake. The remaining $700 million of the shares will be purchased from the open market or through private placement. However, no specific time period is given.

Scripps Networks continues to perform well primarily due to significant growth in advertising and affiliate-fee revenue at the company’s flagship Lifestyle Media businesses and higher segment profit. We believe both advertising revenue and affiliate fee revenue will remain healthy in the near future due to an improving U.S. economy. 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.

As of March 31, Scripps Networks had $794 million in cash and cash equivalents, up 44% sequentially. Free cash flow in the previous quarter was $210.4 million compared with $142.8 million in the year-ago quarter. Management expects full-year 2011 total revenue at the flagship Lifestyle Media segment to increase by 10% -12%, whereas Programming expenses will likely witness 6%-9% inflation.

We believe these are the primary reasons considered by management to initiate a share buyback program in order to raise its shareholders’ value. Furthermore, the company divested its online consumer shopping business Shopzilla Inc. to Symphony Technology Group for a total consideration of $165 million. Scripps Networks has received $150 million in cash and will get the rest $15 million in deferred payment.

Nevertheless, the lifestyle programming market is highly competitive. Despite the increased advertising revenue of the company in the last quarter, it fell below the growth rate of  Discovery Communications Inc. (DISCA) and News Corp. (NWSA). We thus maintain our long-term Neutral recommendation on Scripps Networks. Currently, it holds a short-term Zacks #3 Rank (Hold) on the stock.

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