Eye bloodshot after Q4 loss, dividend cut

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CBS Corp. on Wednesday slashed its quarterly dividend 81% — from 27 cents per share to 5 cents — as it reported a 52% profit decline for the fourth quarter.

There had been rising chatter on Wall Street recently that the company would need to reduce its quarterly payouts to maintain its debt ratings in the face of slowing financial momentum. Downgrades to debt ratings make borrowing more expensive for companies.

CBS Class B shares rose 8% in after-hours trading after closing down 2.2% to $5.13 before the earnings update.

"We have always been vigilant in maintaining our balance sheet in order to provide the strong financial flexibility that is more important than ever in these uncertain economic times," CBS Corp. president and CEO Leslie Moonves said. He said the company's move is "prudent" and that its dividend yield remains "at the forefront" of the media industry. Moonves also said CBS felt that the size of the cut was right after hearing some suggest a 50% reduction and others propose killing the dividend altogether.

It was the final step in a reversal from repeated dividend increases since CBS launched the payout at the start of 2006, following the split from Viacom, at 14 cents per share and repeatedly raised it.

Management had said it was comfortable with its dividend until recently, when it said it would decide the future of the dividend depending on the environment.

In a conference call, management said major debt maturities are only coming up in mid-2010, but the company wants to be cautious and self-fund next year's debt obligations of $1.6 billion. It expects to reassess its dividend later.

Executive chairman Sumner Redstone said the dividend reduction will not be a hurdle to a successful conclusion of current debt renegotiations between his holding company National Amusements and its creditors, reiterating comments from last week that there has been "very good progress."

He again emphasized that there are no plans for further sales by National Amusements of shares of CBS or sibling Viacom.

CBS said its fourth-quarter adjusted profit from continuing operations was $226.7 million, down 43% from the year-ago period's $382.5 million. Net profit of $136 million was down 52% from $286 million last year.

CBS recorded a pretax noncash impairment charge of $62 million during the fourth quarter to reduce the carrying value of goodwill and intangible assets in connection with radio station sales.

Revenue fell 6% to $3.53 billion from $3.76 billion in the year-ago period. Its TV unit reported an 8% revenue decline amid a sluggish ad market, radio revenue decreased 18%, and the interactive unit revenue rose only 1% when assuming the firm had owned recent acquisition CNET in the year-ago period.

"We are clearly in the midst of one of the most difficult financial environments in history, with very little visibility on how long these economic conditions will continue or if there is worse to come," Redstone said. On the call, he added that 2009 so far is showing "little sign of improvement."

But he said CBS is focusing on cost reductions, its balance sheet and content — which he argued remains king — in this environment to position itself for upside once the economy turns.

Moonves predicted a better second half for CBS Corp. thanks to new TV shows entering syndication. He added that "the contraction of the economy accelerated in the fourth quarter." (partialdiff)
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