Entertainment Conglomerates Ready Quarterly Earnings Reports

5:00 AM PST 04/27/2011 by Georg Szalai
Paramount Pictures

Cable networks divisions will once again lead the charge, while film results will mostly be weaker.

NEW YORK -- Cable TV network divisions will once again be a key growth area when entertainment conglomerates report their results for the first calendar quarter over the coming weeks.

However, film units will in many cases see weaker results, according to Wall Street observers who even predict writeoffs for the one or the movie flop.

After all, TV advertising momentum has continued amid a strong scatter market for last-minute ad buys, while boxoffice dropped in the opening quarter of 2011.

On earnings conference calls with conglomerates’ management teams, Wall Street analysts will keep eyes and ears wide open for signs of how strong ad momentum has been as of late and how it may trend going forward, including in the upfront sales season. There are also questions about whether auto companies will continue to spend freely on ads.

Any color will help analysts update their forecasts at a time when some are wondering whether there is more upside left in big sector stocks.

After a continued run-up, stocks will likely need to tread water a bit, Nomura Securities analyst Michael Nathanson predicted last week, for example. "The valuation argument is now a bit trickier," he said.

Earnings upside surprises and following revisions to analysts’ forecasts are the likeliest driver of big sector stocks going forward, according to Nathanson.

His comments followed a recent note from Barclays Capital analyst Anthony DiClemente who had said: "Some recent data points may suggest that the ad market could in reality be less robust than year-to-date media [stock] performance implies."

Others, like Lazard Capital Markets analyst Barton Crockett, remain more optimistic. He predicts “few signs of auto deterioration, a big concern. Instead we see signs of producers stepping up when a rival steps back.”

Whatever the future may bring, conglomerate results for the first quarter of calendar year 2011 will be a mixed bag, according to observers.

"Quarterly earnings will be marked by continued strength in cable networks that will be offset by materially lower studio performance in the face of the 21 percent decline in U.S. boxoffice performance," predicts Janney Montgomery Scott analyst Tony Wible.

Here is a look at expectations for key conglomerates:

Viacom
The company, which kicks off the quarterly earnings season for sector biggies on Thursday, could provide an upside surprise, according to analysts.

Miller Tabak analyst David Joyce expects Viacom to report a 6.5 percent quarterly revenue gain to $2.90 billion plus a profit increase.

Wall Street agrees that the company's TV networks continued to record growth in ratings and ad revenue driven by such hits as MTV's Jersey Shore, BET's The Game and Comedy Central's Tosh.0. Nomura analyst Michael Nathanson estimates U.S. ad growth of 10.5 percent, up from 10 percent in the previous quarter.

Film revenue grew amid a boxoffice-leading performance driven by such releases as Rango, Justin Bieber: Never Say Never and No Strings Attached. It also had six home video releases compared to only one major release last year.

But there are different takes on how exactly the film unit's bottom line will look. Stifel, Nicolaus analyst Drew Crum predicts an operating loss of $30 million in the film segment, down from $87 million in the year-ago period, while Joyce eyes a $82 million loss. Meanwhile, Evercore Partners analyst Alan Gould recently raised his film unit estimate from a loss to a $3 million operating profit

CBS Corp.
CBS Corp., which, like Viacom, is controlled by chairman Sumner Redstone, should see a quarterly revenue decline due to the lack of the Super Bowl, which boosted year-ago figures, and the sharing of NCAA broadcast rights with TW networks as of this year, according to analysts. Gould projects a 3.7 percent decline to $3.40 billion. Nathanson eyes a 5 percent revenue decline, but estimates underlying CBS Network revenue growth of around 7 percent.

But when the company reports its latest figures next week Tuesday, quarterly profit is expected to show an improvement due to the sharing of NCAA costs, lower costs when compared to last year’s Super Bowl broadcast and continued cable networks and local broadcasting growth. Joyce projects a profit of $122 million for the first quarter, while UBS analyst John Janedis eyes $142 million.

Wall Street will look for CBS Corp. president and CEO Leslie Moonves to provide latest upfront comments and broader ad market color.

NBCUniversal
A day after CBS, Comcast will for the first time report and consolidate quarterly results for NBCUniversal. It completed its acquisition of a majority stake in the company at the end of January.

Management is expected to provide more detailed financials and insight for the entertainment company's different units, such as the cable networks, which account for a majority of profit, as well as the broadcast TV business and film and theme parks.

That could make NBCUni a bigger focus for Wall Street than it was under General Electric, which now owns a minority stake in the company.

Time Warner
Time Warner is stepping up to the earnings plate the same day as Comcast/NBCUni.

Stronger TV network financial results are likely to be offset by declines in the film and publishing divisions as some analysts have reduced their film estimates amid tough year-ago theatrical comparisons from Valentine’s Day and Sherlock Holmes and a shortage of blockbusters this time around with releases such as Sucker Punch, Red Riding Hood and Hall Pass.

Morgan Stanley analyst Benjamin Swinburne projects a 4.2 percent drop in TW profit to $606 million with TV network unit operating profit rising slightly to $1.19 billion, while film profit will decrease 34 percent to $111 million.

Joyce eyes $624 million in total TW profit, while revenue will grow 3.2 percent to $6.53 billion.

Among the tidbits that investors will look for is how U.S. HBO subscriber trends shook out this quarter after a 1.6 million decline in non-paying subs in 2010 raised some concerns that management has signaled will prove unfounded.

"Investor focus will remain on the company's ability to cope with the changes in industry dynamics that challenge HBO and the Turner networks," Wible said in explaining key conference call themes. "The forthcoming launch of HBO Go will address some of these concerns and should rebuild faith in the network, while Turner's dependence on syndication may be addressed around the upfronts as we suspect TW will shift programming towards originals and exclusives."

News Corp.
Later that same day, Rupert Murdoch’s News Corp. will report its latest quarterly financials as well.

Joyce is looking for lower profit -- $734 million, compared to $839 million in the year-ago period -- on lower revenue -- $8.12 billion, compared with $8.80 billion. Film operating profit will likely be hit hard given tough year-ago comparisons with Avatar and lackluster theatrical releases Diary of a Wimpy Kid: Rodrick Rules and Big Mommas: Like Father, Like Son, while cable networks will once again be a key growth area and broadcast TV results will strengthen, he projects.

"Both the TV ad pricing environment and ratings were quite favorable for News Corp.'s TV properties in the quarter, and we think both the cable nets and Fox performed solidly," said RBC Capital Markets analyst David Bank.

Meanwhile, MySpace is widely believed to have remained a drag on results as well with Bank expecting a loss in the $50 million-$60 million range. Analysts hope for an update on the MySpace sales process on the earnings call.

Walt Disney
On May 10, Walt Disney will share its latest results, and analysts expect improved financials thanks to stronger ESPN results despite some challenges elsewhere.

Film unit comparisons are particularly difficult given the year-ago success of Alice in Wonderland. Plus, "recent movie flop Mars Needs Moms will likely drive a write-off in the studio segment," Crockett said.

Swinburne estimates a $50 million writedown on Mars Needs Moms. Bank said the box-office performance of the other two key releases in the quarter -- I Am Number Four and Gnomeo & Juliet -- "were somewhat uninspiring" as well.

Overall, Bank eyes a 7.2 percent revenue gain to $9.20 billion. And Swinburne targets a profit from continuing operations of $1.02 billion, up from year-ago earnings of $953 million.

The Street hopes for management color on the financial impact of the recent earthquake and tsunami in Japan and potential increases in theme park expenses. "The tsunami-driven closure of Tokyo Disneyland near-term impairs a business driving 4 percent of segment profits," Crockett highlighted recently.

Sony Corp. will round out entertainment conglomerate earnings season on May 26 in what will be its latest quarterly as well as its full fiscal year financials.

Email: Georg.Szalai@thr.com
Twitter: @georgszalai

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