Updated 4:30 p.m. ET
Despite reporting solid fourth quarter earnings to cap one
of the best years in its history, Crown Media Holdings executives got an earful
from unhappy investors who want majority owner Hallmark Cards to sell the
company.
During Crown's earnings call with analysts and investors, president
and CEO Bill Abbott spent a lot of time listening to investors who bought stock
before the company was recapitalized, a move that diluted the value of minority
stockholders equity and left Hallmark
Cards with a 90% stake.
Similar complaint have been registered on previous Crown
Media earnings calls, but this time, some of the questions got personal and
seemed to get under management's skin.
"I want to congratulate you guys on some good operating
results," said investor Brad Vigran of Vigran Hays LLC. "But it's become very
clear that nobody on Wall Street, or not enough people on Wall Street, are
really watching your stock. Your stock is effectively an orphan and because of
the significantly low float, it will probably always be an orphan. So why don't
you guys just sell the company? It's obviously worth significantly more than
it's trading for here at $1.27."
After a long pause, Abbott replied that Hallmark remains a
90% equity owner and "at this point has no intention to sell the business."
Peter Okin of Stifel Nicolaus asked Abbott how long he's
been CEO. After Abbott responded that it's been three years, Okin noted that
the stock price then was at least $3 a share.
"You guys did a recap valuing the company at $2.60. As the
previous caller said, the stock is currently at $1.27 today, basically flat on
the most successful year you've had in the company's history," Okin said,
asking. "I'd like to know what the plan is for [minority] shareholders, because
it clearly is a total lack of interest in the shareholders."
Abbott said that management is focused on "growing the
business and creative value by developing good programming that resonates with
our viewers, our distributors and our advertisers." He added, "We have very
little control over the other issues you spoke of."
Okin responded by asking, "Would you invest with people who
make 100% of the decisions, own 90% of the company and clearly, clearly have no
interest in the other 10%?" When Abbott didn't reply, Okin declared. "You
silence speaks wonders because you would never do that." He said he thought the
stock was worth $5, and that he could afford to wait.
Abbott said his remarks would be passed on to Hallmark.
Lawrence Stern of Stern Capital, said that shareholders who
bought before the recapitalization have been left with "no voice, no
opportunity to vote our shares, and no constructive way to get out of this
situation." He said Crown Media was a "private company masquerading as a public
company" and asked when the company would be sold.
For the quarter, Crown Media reported higher income thanks
to a strong performance of Hallmark Channel and Hallmark Movie Channel during
its traditionally strong holiday season.
Net income for common shareholders was $29.9 million, or 8 cents a share, up
from $18.7 million or 5 cents a share, a year ago.
Revenues were up 10% to $90.7 million.
Advertising sales rose 19% to $81.7 million in the quarter. Ad sales at
Hallmark Channel were up 14%, while ad revenue at Hallmark Movie Channel jumped
76% to $10.9 million.
Abbott said that ad sales remained strong in the first
quarter with scatter pricing 41% above upfront for Hallmark Channel and 27%
above upfront for Hallmark Movie Channel.
"Scatter continues to roll along. While not robust, it was
solid enough that we feel good about the upfront for 2012-13," he said. "Second
quarter is still evolving but we have a strong market. Even though the broader
economic trends continue to be weak, the marketplace for cable and for us is
relatively strong."
Subscriber revenue fell 19% to $17.8 million because a year ago, the company
recognized delinquent fees after completing a carriage agreement with a
multiple system operator.
"Our fourth quarter and holiday season continues to be a source of
strength and interest to advertisers for Hallmark Channel and Hallmark Movie
Channel," Abbott said in a statement. "Advertising sales revenue from
our highly sought after seasonal programming directly contributed to our EBITDA
growth."
He added: "We are pleased with our results from the quarter and the
year, and are pursuing strategic initiatives that will continue to resonate
with our viewers, advertisers and distributors."
Programming expenses rose 4% to $446.1 million because of increases in original
programming.
The Martha Stewart Show, which was supposed to be a keystone
of Hallmark Channel's daytime programming strategy, will be ceasing production
soon. Abbott said that Hallmark would be able to talk about a replacement before
the upfront's start. "We are anticipating that in a very short period of time
we'll have some very significant announcements to make," he said.
"We are very committed to this daypart. We still believe
that there's a major point of view for Hallmark Channel to have a distinct
offering that resonates with viewers, advertisers and our distribution partners
in this important category," Abbott said. "The potential extensions and other
opportunities in other areas including digital we think are what's best for our
company, so we are looking forward to moving in a direction in 2012 that
solidifies our entry in this marketplace."
