Analysts expect Q2 pain
Entertainment firms to start reporting earnings next weekNEW YORK -- The economy will be front and center when the big publicly traded entertainment companies start reporting their latest quarterly earnings next week.
Management teams will provide updated guidance that investors hope will shed more light on the level of economic pain they should expect.
Case in point: Viacom Inc., which will be among the first sector biggies to report its second-quarter earnings on Tuesday.
CEO Philippe Dauman shocked investors in late May by lowering his U.S. cable network ad growth estimate for the latest quarter from 7% just a few weeks earlier to 3%- 4% citing a weak scatter ad market.
"Despite a solid upfront at Viacom and across the cable network industry, investors are increasingly concerned about Viacom's growth prospects," Pali Research analyst Richard Greenfield said.
Sanford C. Bernstein analyst Michael Nathanson expects 13.3% revenue growth at Viacom for the quarter to $3.38 billion but a 3.5% profit decline on higher costs. However, this estimate came before the disappointing boxoffice for "The Love Guru," which may push the film division below expectations.
A day after Viacom, Disney will step up to the plate, and UBS analyst Michael Morris predicts that fiscal third-quarter results "should reflect tough comparisons." He particularly cited the firm's theme parks unit, which faces an unfavorable Easter timing comparison, and studio division, which last year got a major boost from "Pirates of the Caribbean: At World's End."
And like in the case of Viacom, "financial trends at economically sensitive businesses should be a focus for investors," Morris predicted.
The parks have held up well so far this year, but analysts are concerned that the negative impact of a weak economy will only hit Disney with some delay. For example, Lehman analyst Anthony DiClemente recently downgraded Disney shares to "underweight," arguing that "the deteriorating U.S. economic trends are likely to begin to impact results at the parks segment as we move into Disney's fiscal year 2009."
Nathanson said he expects a 10.4% decline in film unit revenue and a 46.2% decline in profit, while Disney's cable networks unit should grow its revenue and bottom line around 9% each. Overall, he sees revenue ending up 2.8% in the quarter and profit rising from $1.18 billion to $1.20 billion.
For CBS Corp., the analyst projects a minimal revenue gain but a 13.4% profit decrease to $340.4 million as costs for new radio initiatives and other factors weigh in.
Analysts are looking for signs of how the company is managing its TV and radio assets amid economic weakness, which many have suggested will hurt it more than its peers and has already led to staff reductions.
Wall Street also will ask for more color on the plans for recently acquired CNet, which has elevated CBS Corp. into the top echelon of online players.
News Corp. chairman and CEO Rupert Murdoch has played amateur economist more regularly than other media moguls, so one can expect comments from him on where the U.S. and world economy is going when News Corp. reports its fiscal fourth-quarter results on Aug. 5 and gives its initial growth outlook for its new fiscal year.
"News Corp. should be able to grow organic operating income at least 7% in fiscal 2009," Greenfield said. However, amid Murdoch's past gloomy predictions, "the risks to achieving that growth are escalating," he said.
Nathanson eyes a whopping 14.8% quarterly revenue gain from News Corp. thanks to its acquisition of Dow Jones, its satellite TV arms and cable networks. Profit could decline 7.6%, though, amid higher interest and tax costs.
Time Warner will wrap up this quarterly earnings season, and again the outlook will be a key focus.
Morris warns that TW's "film segment faces tough comparisons in the second half" of 2008. Luckily, " 'The Dark Knight' outperformed our expectations and should improve TW's ability to meet full year guidance," he added.
AOL and the Time Inc. publishing unit should see lower quarterly revenue and profit, most analysts expect. Nathanson expects overall revenue to rise 2.7%, but profit to decline 3.2%.
Interestingly, Miller Tabak + Co. analyst David Joyce recently raised his earnings per share estimate by a penny, "reflecting continued strong demand for advertising at Turner and better than expected film performance" despite a likely writedown for "Speed Racer."
On TW's conference call, investors will, of course, also look for updates on the spinoff of the cable unit, planned for later this year, and a possible sale or merger of AOL.