National CineMedia Predicts Strong Q4; Says DOJ Suit Was A “Surprise”

National CineMedia’s bullish forecast for Q4 movie theater ad sales – and vigorous defense of its $375M merger plan with Screenvision — helped its shares regain a little bit of the ground lost today after the Justice Department challenged the deal. The stock is up 4.4% in post-market trading, after falling 21.8% during the day. CEO Kurt Hall says, in an earnings report released late today, that his company’s national ad sales have “made a meaningful recovery” with Q4 sales projected to increase 20% versus the same period last year.

“This turnaround reflects an increased focus by media planners on video platforms and higher-quality event programming that delivers ubiquitous national coverage and enough impressions to positively impact the marketing campaigns,” he says. “While this year’s upfront was a good start, our proposed merger with Screenvision will further enhance our ability to deliver what media planners want to buy.” Hall says that Q4 commitments are up 44% with 13 new clients prepared to spend $58M, plus nine that returned from last year agreeing to up their spending by 14%. What’s more, “the auto category was one of our largest upfront increases. This appears to be a shift in strategy” for the industry.

The projected national sales are important following what Hall described as “a disappointing quarter,” largely due to weak national advertising. Net income at $4.8M is down nearly 65% from the period last year on revenues of $100.8M, down 21%. Analysts expected the top line to come in around $103.6M. Earnings came in at 11 cents a share – on target with the Street’s expectations.

As for the DOJ decision, “honestly it was a little bit of a surprise that it came out this way,” Hall told analysts in a conference call. NCM wasn’t asked to make any concessions and is unaware of any opposition from outsiders. “We feel very confident that our arguments continue to be strong and clearly some of the claims that the DOJ has made can be proven incorrect or misguided. That will be our job over the next several months.” If the deal falls apart then NCM has to pay Screenvision a $28.5M breakup fee, “but we’re a long ways from that.” The companies had hoped to close the deal around now; they now say that will have to wait about six months for a court decision.

The companies will argue that, without a merger, “we just don’t have enough impressions right now to be able to provide all of the demo targeting and related guarantees that TV does,” Hall says. TV can offer advertisers opportunities to target 78 demo groups, but NCM — reaching a much smaller audience — has “just barely started to sell two or three or four.”

Hall adds that the companies have their merger financing and integration plans in place, and project $30M a year in savings.

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