Lamar Advertising Company (NASDAQ: LAMR) reported strong sales and earnings for the second quarter ending June 30, 2004. In a conference call with securities analysts on August 5, 2004, the company reported that revenue on signs owned for one year or more rose 7.7%. When signs acquired through acquisitions since last year are included, revenue rose 9%, from $208,178,000 to $226,915,000. Management reports that the increased revenue came as a result of both higher occupancy rates and higher prices. Occupancy on Bulletins was 79% in the second quarter this year compared to 75% in the same quarter last year. For Posters, occupancy was up to 70% versus 67% in 2003. Advertisers are also willing to pay higher rates for signs. The average rate on Bulletins this year is $1,037 per face compared to $996 in last year’s second quarter. Posters were also up. The average rate rose to $426 from $416.
While some of the growth came from new customers, such as companies in the insurance industry, the driving force for Lamar was existing customers buying more faces at higher prices. Management attributes this to the strong local economies that they see throughout the nation.
The trend to increased occupancy and higher prices should continue at least through the second half of this year according to Lamar. The amount of business that they have already booked from customers is 87.5% of their budget for the year. This is not only a solid rate of booked business at this time; it is a strong increase over last year. In the summer of 2003, the company had booked 82.8% of budgeted sales. Management reports that all of their nine regional managers are reporting strength in sales, and crediting solid local economies for business spending on ads.
Lamar expects occupancy levels and ad rates to continue increasing for the rest of 2004 and probably into 2005. The company has historically looked at normal occupancy as 80% to 85% for Bulletins, and 70% to 75% for Posters. These traditional norms could be reached in late 2005. However, that does not mean that the company’s revenue growth will stall from that point. When occupancy levels are high, further demand will simply push prices higher.
The company also reported that acquisitions continue to be an important part of their business. During the first half of this year, Lamar has made 42 acquisitions for total outlays of $124 million. The company is also continuing to buy easements from property owners in order to replace term leases. Referred to as “buying down leases,” Lamar has developed a program to pay landowners for an easement that terminates the need to keep renegotiating leases periodically. This stems the growth of rising lease payments and is a good use of company cash. The pace of easement acquisitions is about the same as in 2003 and may pick up speed in future years.
The rollout of digital billboards has continued, and the Pittsburgh market now has a full complement of 10 of these modern signs. With the completion of this group, management will now be able to better assess the potential of this new segment of outdoor advertising. Placing digital sign faces on other billboards, such as highway Bulletins, will probably be a slow process. Local and state regulations, and in some cases local opinion, can be difficult and time consuming to overcome. Like the other major billboard companies, Lamar sees electronic billboard faces as the future of the medium.
In a presentation to securities analysts on June 14, 2004, management reported on several issues affecting both the industry and the company.
- Lamar has increasing opportunities to cooperate in advertising programs with other media such as radio and TV. This might be with independent stations not owned by Clear Channel or Viacom, or it could include the stations owned by those companies. With the strength in ad spending that was seen beginning in 2003, cooperation even among competitors could benefit everyone.
- Audience measurement for the outdoor advertising industry is becoming much more important, and will drive further growth because advertisers will have growing confidence in the statistics. The number of cars is known now, but the key issue to advertisers in the future will be who is in the car.
- The company may participate in future Nielsen studies of media measurement, but there may be limited benefit for Lamar from more studies in the top 10 markets. Since most of Lamar’s signs are outside of the largest cities, the company is more interested in studies of the top 100 markets.
- The economic recovery is broad-based and is bolstering billboard sales all the way out to Main Street in smaller and medium-sized towns.
- Occupancy has been rising at Lamar every month in 2004, and prices are rising as well. Since the last quarter of 2003, Bulletin prices are up 3% to 5% and Poster prices are up 1% to 2%.
- All of the company’s debt has been refinanced in the past two years. With interest rates at the lowest point in decades, it was possible to reduce interest rates on both fixed and variable-rate debt.
The company also reported that “visibility” of future revenue and earnings is better than it was in 2001 and 2002. This means that advertisers are buying space further out in advance, allowing billboard companies to see revenues that will be collected in future quarters. Expenses can be minimized with advance sales because truck routing can be more organized and other efficiencies are possible.
Lamar has nine regional managers throughout the U.S. and those managers west of the Mississippi River have reported the strongest market demand. Same-store revenue in the Rocky Mountain States was up 12.7% in 2003, and it was running 16.4% ahead for the first five months of 2004. The increases are being achieved on the existing boards because there is little new inventory available either through new builds or through acquisition. Very little capacity is being added, although the company continues to look for small and medium-sized operators to acquire. Future growth is likely to come mostly through rate increases and maintaining occupancy at high levels.
Property owners have become more sophisticated in recent years and are asking for higher land rents. Lamar has staggered maturities in its lease portfolio, with 10% to 12% of billboard sites requiring renegotiation each year. The company has been more active recently in buying permanent easements from landowners in order to fix the cost of sites.
Lamar, like the other major billboard companies, sees the future of the industry in the deployment of digital billboard faces. This technology essentially creates a video billboard that can have the message changed as often as every six seconds in some cases. State regulations establish minimum display periods, but changeable message signs are the future of the outdoor industry. Lamar has installed digital faces on some of its signs to test certain features (and the demand by advertisers), and they are pleased with the results. Although the cost of a digital sign is much higher than conventional billboards, Lamar has plans to install more digital units each year.
Additional information and financial details are available at the company’s website www.lamar.com.