In its bid to build clusters of Christian radio stations around the country, Salem Communications Corp. is running into some resistance on Wall Street.

Last week, the Camarillo-based broadcasting company was trading at under $19 a share, compared with more than $30 a little over a year ago. That drop-off came despite first-quarter net income more than doubling from the like period a year earlier.

What’s the problem? Prospects for the second quarter. The company projects earnings per share of 11 cents to 13 cents, lower than analysts’ expectations of 17 cents.

“They’ve had an exorbitant number of start-up properties purchased over the past six months,” said Stanford Group analyst Frederick W. Moran. “At this point they have more properties in a start-up mode than I’ve seen in a long time.”

Some of the decline reflects wider problems in the radio industry, which has suffered from soft advertising and competition from new technologies. Still, Salem’s 40 percent stock drop over the past year easily eclipsed the industry average of 23 percent.

The largest Christian radio broadcaster in the country with 105 stations, Salem has been on an acquisition binge in order to build clusters in each of its two strongholds traditional Christian teaching and contemporary Christian music while moving more strongly into news/talk. Salem operates 32 news/talk stations, up from 15 at the beginning of 2004, and has plans for more.

The long-term value of the acquisitions hasn’t entirely been lost on analysts, who note the growth of Christian radio in national ratings and ad revenue. To some extent, Salem is mimicking the strategy of its secular rivals such as Clear Channel Communications Corp. and Viacom Inc.’s Infinity Broadcasting division, by building clusters of stations in individual markets to share studios and market advertising.

“We think we bought those stations at attractive prices and once we invest in them and grow them to maturity, they’ll be very attractive investments,” said David A.R. Evans, executive vice president and chief financial officer.

In Los Angeles, Salem owns the contemporary Christian station KFSH-FM (95.9), the Christian teaching station KKLA-FM (99.5) and the news/talk station KRLA-AM (870). All three operate out of a common facility in Glendale.

Daniel Anstandig, vice president of adult formats for the Cleveland consulting firm of McVay Media, said that the talk radio expansion could be risky. “There have been some successes in some markets, but it had not produced great ratings nationwide,” he said.

Evans thinks it comes down to a Wall Street thing, noting that analysts “tend to be more oriented to the short term.”


James Nash

Beyond Hotcakes


Grilled cod with lemon hollandaise at the local IHOP?

Glendale-based IHOP Corp., which has long tried to draw customers after breakfast, is rolling out its first major new menu since its start in 1958.

The new menu, which still includes the usual array of pancakes, features 13 new items, including the aforementioned cod and a shrimp Caesar salad.

“This is the most ambitious and significant change we’ve seen in some time, the results of which will be illuminating in how far they’ve come in changing consumer perceptions,” said Bryan Elliott, restaurant analyst for Raymond James & Associates.

The menu change is part of a larger effort by Chief Executive Julia Stewart, who has been looking to resurrect the chain through new ad campaigns, product promotions and even a change of the business model to a traditional restaurant franchisor.

IHOP ran aground in the 1990s because it focused on building more restaurants, which left little cash to reinvest. By switching to a franchisor model, the chain now has just 10 company-owned restaurants, down from 44 in 2003.

Even so, IHOP missed analysts’ estimates due to disappointing same-store sales growth of just 0.6 percent in the first quarter not enough to offset increases in general and administrative spending.

Since Stewart’s arrival, the company has been focusing more on improving store-level operations and increasing the amount of data it’s collecting from restaurants.

“They have spent a lot of time testing products, but the question is: Can they convince consumers they’re a viable option for lunch and dinner, rather than just a place for pancakes?” Elliott said. “I’m cautiously optimistic they’ll see some success.”


David Lott

Private Matters


Newport Beach’s William Lyon Homes Inc. has formed a special committee to consider Chairman William Lyon’s proposal to take the company private.

It has also hired Credit Suisse First Boston LLC, a unit of Switzerland’s Credit Suisse Group, as a financial adviser. The law firm of Skadden Arps Slate Meagher & Flom LLP of New York is set to serve as legal counsel to the committee, the company said in its announcement.

Board member William McFarland is set to chair the committee. Other members are William Lyon directors James Dalton, Michael Meyer and Randolph Westerfield.

Lyon and other board members are facing a handful of lawsuits alleging that his offering price of $82 per share is too low. Lyon controls, either directly or through trusts, about 72 percent of the company’s shares.


Orange County Business Journal

Gamesmanship


Activision Inc. has acquired Quebec-based game developer Beenox Inc. in a move to boost its presence in Canada. Terms of the deal were not released.

Closely held Beenox will become a wholly-owned subsidiary of the Santa Monica-based videogame publisher and Beenox’s management team and key employees signed long-term employment contracts with Activision. Beenox’s 32-person team will continue to be based in Canada.

Activision has worked with Beenox since 2003 on a number of popular titles, including “Shrek 2.”