Radio interference muddies CBS Corp. Q1

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NEW YORK -- CBS Corp. reported a lower first-quarter profit Thursday as lower radio results and taxes on the sale of radio stations dragged down the bottom line. Still, the result exceeded the average Wall Street forecast.

While analysts gave the financial update differing reviews, CBS shares closed up 0.8% on Thursday at $32.06 after setting a 52-week high of $32.45.

In Thursday's earnings conference call, president and CEO Leslie Moonves said that he has been challenging his creative team at CBS to come up with new and unusual content ideas for the fall and promised "very exciting, very daring" programming.

Scatter advertising market trends have been "extremely healthy," with double-digit ad rate increases compared with last year's upfront, Moonves said. This should buoy CBS' upfront season sales, he said, adding he expects the upfront to be "strong."

Moonves also said during the call that the online distribution sites that are part of the recently created CBS Interactive Audience Network will be part of upfront sales this year.

Asked for an update on CBS' film strategy, the CEO said not to expect the first release in the next 18 months. He added that the company continues to look to hire creatives and already has been offered "very attractive" financing, with "a lot of financing money" available.

Moonves reiterated plans for four to six movies a year with $10 million-$50 million budgets.

He also said Showtime has had preliminary discussions about the pay network's needs in case of contract extensions with its three current studio partners as an output deal with Viacom Inc.'s Paramount Pictures expires this year, followed at the end of 2008 by deals with Lionsgate and MGM.

Profit at CBS Corp. fell from $226.9 million, or $234.5 million on a continuing operations basis, to $213.5 million in the first quarter. The figure for the latest period includes $43.5 million in tax expense for the sale of radio stations in four markets and a $3.4 million gain from the sale. It excludes the Paramount Parks unit that was sold in June and the UPN network, which was shut down.

Operating income before depreciation and amortization edged up $300,000 to $636.5 million. Revenue rose 2.3% to $3.7 billion.

CBS Corp., based here, also reiterated its projection that full-year 2007 earnings would be "comparable" with last year.

Moonves also reiterated that CBS Corp. expects to be able to grow its revenue in the low-single-digit percentage range longer term, its operating income in the mid-single digits and earnings per share in the high-single digits.

While CBS Radio again was a drag on quarterly results, the Simon & Schuster book division showed strength on the success of Rhonda Byrne's "The Secret," and Moonves lauded the strength of CBS' core TV operation.

"The success of the Super Bowl, Final Four, Grammys as well as our overall schedule proved that our core broadcasting business is strong, a position that is strengthening as interactive technologies become mainstream," he said.

TV unit revenue rose 2% to $2.6 billion in the first quarter thanks to a 9% gain in advertising revenue, as well as higher home entertainment results and increased affiliate fees from Showtime and CSTV Networks.

TV operating income before depreciation and amortization fell 6% to $399 million because of the absence of syndication sales of "Frasier" and sports programming costs.

"Even with the unique benefits of the Super Bowl and the timing of the NCAA tournament, CBS continues to deliver inferior revenue growth," Goldman Sachs analyst Anthony Noto said in reiterating his "sell" rating on CBS shares Thursday. "We think TV ad revenue was down about 5% without the benefit of the Super Bowl and down even more without the NCAA."

He predicted that "the deterioration in TV ad revenue should continue to get worse and reinforces our view of rating trends."

Moonves admitted that the CBS network has faced challenges in recent months, saying part of the problem is that about 7% of key young viewers are not being counted for watching shows via DVRs. He predicted they will start to be counted this year.

Radio revenue fell 9% to $462.3 million in the latest quarter, with the company citing the station sales and continued weakness in radio advertising.

Radio OIBDA declined 4% to $164.4 million as revenue declines were partially offset by lower expenses.

Outdoor revenue rose 2%, while OIBDA edged up 1%.

Simon & Schuster revenue jumped 27% to $229.3 million, with OIBDA multiplying from $5.8 million to $23.8 million.

Chairman Sumner Redstone said Thursday that he was "very pleased" with the first-quarter financials.

"CBS creates some of the most popular content in the world, and we're beginning to monetize it effectively with new distribution platforms," he said. "I am very confident that Leslie and his team will continue to create value for shareholders by building our core operations while capitalizing upon interactive opportunities."

He also told analysts on the call that "Les is doing everything right."
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