Eye droops but sees silver lining

Top CBS Corp. execs unfazed as Q2 profit dives 48%

CBS Corp. reported a 48% decrease in second-quarter profit and a 3% revenue slip, but adjusted for various items, including year-ago gains from asset sales, its profit rose 9%.

Confronted with persistent market talk about a possible privatization of his two companies, CBS Corp. and Viacom Inc. chairman Sumner Redstone told analysts during a conference call Tuesday that he likes both "the way they are," adding that "there is an enormous amount of growth in them."

While privatization is not on the front burner, he did acknowledge that "there is a lot of talk inside (the companies) and out" about a potential deal by him to buy one of them out, and his teams will continue to consider options people suggest.

Redstone, who has been feuding with daughter Shari, again lauded CBS Corp. president and CEO Leslie Moonves as "the best executive in the media industry." Analysts didn't ask him about scenarios to resolve the disagreements with his daughter.

Meanwhile, CFO Fred Reynolds said digital revenue at CBS Corp. remains "very small" for now, but it has high margins, and the company hopes to grow it to more than 5% of total revenue. He didn't specify a target date for that goal.

Moonves also played down the digital contributions, saying he is "still very bullish on the power of network TV," which provides the "bulk of money" for CBS Corp. Digital growth is more an evolution than a revolution, he said.

CBS Corp. posted a profit of $404 million, down from the $781.7 million it recorded a year ago when gains from income-tax settlements and the sale of the Paramount amusement parks boosted its bottom line. The recent sale of radio and TV stations also dragged down earnings and revenue in the latest period.

Adjusting for the effects of the items last year and for tax benefits in both periods, second-quarter earnings from continuing operations rose 9% to $393.1 million.

Revenue declined 3% year-over-year to $3.4 billion, driven by an 11% radio unit decrease and a 4% reduction at the TV unit, partially offset by a 14% gain at book unit Simon & Schuster and 4% growth in the outdoor division.

Reynolds reiterated his full-year targets for the company based on its first-half results.

Moonves lauded his company's "strong free cash flow, which continues to allow us to return value to our shareholders." He also signaled that another move to return money to shareholders could be on its way as early as this summer as a current stock buyback ends late this month.

Specifically, Moonves said the company has about $2.8 billion in cash, with a portion of that being in excess of what it needs for investment purposes. CBS already pays a dividend, which it could boost. Another option is another stock-buyback program.

TV unit revenue fell 4% to $2.2 billion, dragged down by the timing of the NCAA semifinals and the impact of TV station sales. Advertising revenue dropped 11%, with CBS citing the same factors, but home entertainment revenue increased $83.4 million compared with a year ago, driven by "Star Trek," "CSI: Crime Scene Investigation" and TV library releases, among others. TV OIBDA rose 3%.

Moonves touted the strength of the CBS network in the upfront ad season, including solid results at the "CBS Evening News With Katie Couric" that have seen some ratings weakness. The upfront brought mid- to high-single digit ad rate increases for primetime programming, with "Evening News" seeing "healthy CPM growth and solid volume growth," he said.

The CEO also mentioned high-single-digit ad rate gains at the company's half-owned CW network during the upfront.

Second-quarter scatter market ad rates were up in the double digits for CBS, with growth of nearly 30% going into the upfront, and third-quarter scatter is "very strong," Moonves added.

He also expressed joy that the DVR pushback "totally disappeared" this upfront season, saying that ad sales based on Nielsen Media Research's data for people who watched network programs up to three days after their airdates seem to have become a comfortable arrangement for both sides. (The Hollywood Reporter is owned by the Nielsen Co., which also owns Nielsen Media Research.)

Asked about his level of concern over a possible guild strike next year, Moonves said CBS has a "full schedule laid out for a year from now," including reality TV, news magazines and game shows, along with library product, if talks shouldn't lead to a deal. "We're all well prepared," he said in a nod to Hollywood studios, but he also signaled confidence in the success of labor talks.

CBS Radio revenue fell 11% to $463.4 million because of station sales and continued sluggishness of ad trends. Adjusted for the station sales, revenue was down 5%. Radio OIBDA declined 18%.

Moonves lauded the early programming changes introduced by new radio president and CEO Dan Mason, citing a return of a New York station to a popular rock format as a key example that helped first-half ratings in the nation's largest market rise 18%. "And New York is just the beginning," Moonves said.

Management declined comment on the status of talks about a settlement with former radio host Don Imus, but Reynolds signaled the company wouldn't take a major charge for it should one be struck.

CBS Corp. Class B shares closed down 3.2% on Tuesday at $31.72.
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