TV Azteca beats forecasts

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MEXICO CITY -- TV Azteca reported better-than- expected operating results in the fourth quarter, but quarterly net income fell below estimates due to a big tax bite. Mexico's No. 2 broadcaster reported that net revenue rose 36% to $137 million in the fourth quarter of 1997 and operating profits surged 53% to $76 million. However, net income fell 44% to $10 million as Azteca used up the last of the tax-loss carry-forwards that it had accumulated from 1993 to 1995. For the year, net revenue rose 68% to $451 million, while net income increased 26% to $143 million.

Stronger sales and operating profits for the quarter can be attributed to better-than-expected growth in the broadcast TV ad market overall and to some market share gains at rival Televisa's expense, said one analyst. Also helping fourth quarter sales were Azteca's broadcast rights to the two teams that ultimately made the national soccer finals, the analyst said. Previously announced ad pre-sales of $346 million for 1998 bode well for the year, the analyst said. "Segments like retail and beverages are going to be relatively strong and those sectors are going to compensate for the reduction in areas like the private pension plans and political spending."

During a press conference, CFO Adrian Steckel noted that Azteca expects Mexico's total ad market to reach $1.5 billion this year, up from $1.3 billion in 1997. Only three major TV advertisers are not on Azteca--Bacardi, Pepsi and Colgate-Palmolive--he said, which collectively account for 10% of the Mexican ad market. Given viewer trends, Steckel maintained advertisers "cannot afford to ignore our audience."

In its bid to maintain and increase its ratings share, Azteca will ramp up original programming, particularly in prime-time, this year, he said. It will produce 9,700 hours, up from 8,500 hours in 1997, and double telenovela productions to 10. "We plan to go head-to- head with Televisa in novelas," Steckel said. The two broadcasters are now competing directly in three news time-slots.

In 1997, Azteca acquired a controlling interest in three foreign stations, in Guatemala, El Salvador and Chile, for a total of about $17 million. This year, it has earmarked between $80 and 100 million for an aggressive expansion in Latin America, Steckel said, with three contracts close to signing which will be announced in a few months.

Azteca has not reached any formal agreement with former Televisa executives Guillermo and Jose Antonio Canedo White for its international expansion, Steckel said.

In addition, Azteca is developing sports and news programming for its network of 19 local stations in order to attract viewers and local advertising. And Azteca chairman and CEO Ricardo Salinas Pliego is planning to create a holding company for his broadcast and other interests that he would like to take public, possibly this year. Although he and his family directly or indirectly own 72% of Azteca's shares, their activities would have no effect on Azteca or its shares, Steckel said.

Copyright February 1998, Crain Communications Inc.

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