Viacom Quarterly Earnings From Continuing Operations Drop 5%

NEW YORK - Viacom Inc. on Thursday reported a lower profit for its fiscal first quarter as its film unit swung to an operating loss and the company reported weaker advertising momentum. But management highlighted improving advertising momentum early in 2012 and promised to return to ad growth.

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The entertainment conglomerate posted quarterly earnings from continuing operations of $591 million, down 5 percent from $620 million in the year-ago period. When including a $383 million charge to cover payments tied to the company's former ownership of the Rock Band video game franchise, earnings dropped 65 percent.

Revenue at the company, led by president and CEO Philippe Dauman, rose 3 percent to $3.95 billion.

Wall Street analysts had on average forecast earnings of $591 million on revenue of $3.99 billion for the final quarter of calendar year 2011. The company beat Wall Street expectations for earnings per share with a 4 percent gain to $1.06 as it continued to buy back stock.

On an earnings conference call, Dauman highlighted that the company is seeing ad sales improvements in the current fiscal second quarter. After softness in scatter ad market volume late in 2011, especially after Thanksgiving, the company is "seeing signs of recovery" in the current quarter as some marketers are returning and spending, with ad prices up, he said. He later predicted a return to advertising revenue growth at Viacom in the current quarter. 

Still, Viacom's stock dropped after the latest results. As of 10am ET, it was down 3.6 percent at $45.30.

In the company's TV networks unit, revenue rose 3 percent as higher affiliate fees were partially offset by a 3 percent advertising decline in the U.S. and worldwide. The company cited ratings weakness and "softness" in the U.S. advertising market as reasons. Operating profit in the networks business rose 7 percent. Management vowed to invest $3 billion this fiscal year in media networks programming.

The film division posted a 4 percent revenue gain, but swung to an operating loss of $31 million. Higher theatrical revenue was partially offset by lower home entertainment revenue and lower ancillary revenue as the prior-year quarter benefited from the sale of distribution rights of two future Marvel films. For the current quarter, Viacom predicted "healthy" profit growth in the film unit thanks in part to the success of the latest Mission: Impossible release.

“In the first quarter of 2012, Viacom proved that it has the creative capability, operational resolve and financial strength to deliver for shareholders despite short term economic headwinds," Dauman said. "Despite short-term softness in the overall ad markets, Viacom’s quarterly results benefited from strong affiliate fee revenue growth, as our industry-leading portfolio of TV brands continued to attract traditional distributors as well as emerging digital services."

He also touted the success of the company's film unit. "Paramount Pictures also began the year with a strong performance in the theatrical market, with hits like Paranormal Activity 3 and Mission: Impossible – Ghost Protocol, which has generated approximately $575 million at the  worldwide box office," he said. "We are looking forward to our slate of films for the 2012 calendar year and are already off to a strong start with the breakout performance of The Devil Inside, a low-cost genre film from Paramount’s Insurge Pictures label that has earned more than $50 million at the box office."

Executive chairman Sumner Redstone, who is also Viacom's controlling shareholder, on the conference call once again introduced Dauman as a friend, colleague and "the wisest man I have ever met."

In a statement, he had earlier said: “Led by an exceptional executive team, Viacom executed on its mission to meet the challenges of a constantly evolving market and deliver value to shareholders."

Viacom has continued to buy back its stock. In the latest quarter, it repurchased $700 million in stock and is on track to buy back another $700 million in the current quarter, management said.

Email: Georg.Szalai@thr.com

Twitter: @georgszalai