CEOs to put ad trends in focus

Outlook will be key as conglomerates report earnings

NEW YORK -- Fears of a double-dip recession have featured prominently in the recent debate over the future direction of the U.S. economy. And recent economic data and revenue misses from the likes of Yahoo, IBM and Johnson & Johnson in the early going of this quarterly earnings season have only contributed to such fears of a possible relapse into recession.

No wonder then that media investors will keep a close eye on what kind of advertising forecasts the CEOs of U.S. media and entertainment conglomerates will make in the coming days as they report their latest quarterly earnings.

To be sure, all evidence points to TV advertising revenue having continued to trend higher for big entertainment companies (thanks to a strong TV upfront market and continued solid scatter, or current-market, sales), which should result in the strongest revenue growth across sector biggies in about two years.

Still, some have started wondering how much ad growth there will be left once the end of the year arrives and brings with it better year-ago ad results, which equates to tougher growth comparisons. Earnings calls from media giants in the coming days may provide some color on future momentum.

"Advertising improved greatly in the last couple of quarters," said Gimme Credit debt analyst Dave Novosel. "But how much more can it improve?"

BTIG analyst Richard Greenfield also mentioned in a recent note that "investors are becoming a bit more concerned about the ad market outlook looking out over the next 6-9 months as economic fears are building again."
But others cite a continued upbeat ad market mood. For example, GE's NBC Universal posted a 5% revenue gain for the second quarter as scatter ad growth hit 20%-plus. And media firm ZenithOptimedia recently boosted its U.S. and global ad forecast citing strong upfront and scatter trends.

Similarly, Barclays Capital analyst Anthony DiClemente last week lowered his growth forecast for U.S. advertising in 2010 from 5.5% to 5%, but boosted his TV estimates. Importantly, the back-half of the year is expected to bring in strong political ad revenue.

Also positive for entertainment earnings: "While domestic boxoffice momentum has pulled back somewhat recently, international performance continues to over-index, helping to generate greater levels of profitability on certain "duds" than we might have expected previously," said RBC Capital Markets analyst David Bank.

Plus, profitability growth at sector giants has often outperformed revenue in recent quarter thanks to past cost cuts and the high margins of ad dollars.

With NBC Universal's and Sony's earnings already in, here is a look at some key things to look for as publicly-traded U.S. sector conglomerates report their latest results in the coming days:

CBS Corp.
CBS Corp. earnings are on tap for Tuesday.

Davenport & Co. analyst Michael Morris has a "buy" rating on CBS shares, citing conservative earnings estimates and valuation. CBS had another strong upfront ad haul, and its radio stations have shown signs of improvement this year.

On the earnings call, analysts will look for more color on current ad momentum from the most ad-reliant sector biggie and on how CBS Films may adjust its strategy after a slow start.

Time Warner
Time Warner steps up to the earnings plate on Wednesday.

While some of its cable networks have had soft ratings trends that they have started addressing, analysts still expect the company to have made good money from ad sales. Or as analyst Bank expressed it in the headline of a recent take on TW: the company is "making hay even when the sun is not shining (on ratings that is)."

The studio performed mostly in line with expectations except for the disappointing "Jonah Hex." "While we would like to have seen the DC (Comics) IP-based film turn into a franchise-worthy hit, since it was co-financed by Legendary Pictures, we think potential losses could be somewhat limited," said Bank.

TW management may on its conference call still tout future superhero movies though as DC is hard at work on "Green Lantern" and others.

News Corp.
Rupert Murdoch's media conglomerate reports earnings after the market closes on Wednesday.

The firm's prior-year period bottom line included $680 million in charges, including write-downs on the MySpace social networking site.

Beyond updates on the financial and traffic performance of the site, expect some ad market commentary from brass of the most global media conglomerate, some words on the re-jigged "American Idol" with its new panel of judges and an update on the company's plans to buy full control of U.K. sat TV giant BSkyB.

Viacom
Viacom posts its latest quarterly results on Thursday.

For the company's film unit, analysts expect weaker home video revenue, strong results for "Iron Man 2" and "Shrek Forever After" and a possible pay TV improvement. The key for management here will be to show the studio's turnaround continues to be on track.

But the key data to watch are once again the domestic TV ad figures, which finally showed some growth last quarter. "MTV's ad revenues should continue to accelerate over the course of 2010," predicts Greenfield. And the company has also focused on boosting the profitability of video game franchise "Rock Band." The Street will look for more evidence that this has reaped some benefits.

Walt Disney
Disney rounds out the quarterly summer earnings parade next week.

Analysts have recently lauded the company's creative resurgence. Said Bank: "The studio continues to produce hits with this quarter's new releases reconfirming a successful content cycle turn."

The performance of mid-June film release "Toy Story 3" will have important effects on the latest results as will DVD sales of "Alice in Wonderland." Plus, ad sales have remained solid across the firm's businesses, according to Street expectations.

Investors will also be watching for signs of improvement in the theme parks unit and a summary of how the World Cup soccer tournament worked out financially for ESPN.
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