More bad economic news for biggies

Analysts cutting financial estimates for key players

NEW YORK -- Brace yourself for talk of worsening trends in ad sales and DVD revenue when the entertainment conglomerates report their final quarterly earnings for 2008.

With the recession deepening toward the end of last year, many analysts have cut their financial estimates for key sector players, using such bearish lines as "earnings shrinkage" and "no light at the end of the tunnel."

Investors will listen for signs of how national advertising is holding up -- or not holding up. Local ad revenue for most firms is projected to decline 10%-20% for the quarter compared with the year-ago period; some expect national ad revenue to decline in the high single digits.

The film units of sector biggies had strong boxoffice finishes in 2008, but many face tough year-ago comparisons and have seen declining DVD sales.

GE's NBC Universal recently posted results in line with those trends, and diversified conglomerate Sony weighed in with its figures Thursday. The Japanese giant will register its first fiscal-year loss in 14 years for the 12 months ending in March.

Despite strong results for the James Bond movie "Quantum of Solace," Sony's film division saw a 22% revenue decline during the latest quarter. Operating income fell, but only because of unfavorable exchange rates; on a constant-dollar basis, it would have risen by 6%.

Disney, which eliminated 400 jobs Thursday at its Disney-ABC Television Group, reports Tuesday. Some on Wall Street have turned bearish on the longtime sector favorite.

"Last quarter, Disney missed consensus estimates for the first time under Bob Iger's four-year-plus tenure," Sanford Bernstein analyst Michael Nathanson said in a report titled "Has Reality Hit the Magic Kingdom?" "We forecast that there is a good likelihood of that happening again."

Nathanson expects a profit of 50 cents a share for what is Disney's fiscal first quarter, down 20.7% from the year-ago period, and revenue of $9.9 billion, off 5.3%.

While its TV unit and theme parks are affected by the recession, "Disney's DVD unit sales were down an estimated 33% in the quarter, the most of any conglomerate in our coverage," he said.

Time Warner's fourth-quarter and full-year figures, to be unveiled Wednesday, should bring few surprises after a recent earnings warning that cited the recession's negative effect on its ad businesses and special charges.

In a rare highlight for the quarter, the company had much success with "The Dark Knight" DVD, which sold more than 12 million units domestically in December.

Investors and analysts also will listen closely for comments on AOL and an indication of how recent layoffs and cost cuts in various units will boost TW's long-term profitability.

News Corp. and CBS Corp. follow with their earnings reports later in the month after a recent slew of price-target and estimate cuts.

Pali Research analyst Richard Greenfield repeatedly has lowered his estimates on News Corp. in recent months, citing the deepening ad recession, and Thursday he downgraded the stock from "buy" to "sell," saying the company needs to shed unprofitable and challenged businesses.

Nathanson also reduced his forecast for what is the company's fiscal second quarter to earnings of 19 cents a share, down from 28 cents, "driven largely by cuts in television, newspapers and filmed entertainment." Revenue should decline by 3.3% to $8.3 billion, he said.

Film profit could tumble by 35% because of tough DVD comparisons and "disappointing theatrical releases" (see "Australia"), he predicts, and TV profit could plunge by 98% because of ad weakness at the firm's stations group.

News Corp. chief Rupert Murdoch also is likely to get questions about his planned use of company cash after last year's decision to stop stock buybacks to keep powder dry in a down economy.

"It is hard to imagine any better use of News Corp.'s cash and balance sheet than repurchasing stock at these levels," Greenfield said.

Meanwhile, Stanford Group analysts Frederick and Clayton Moran were among those who trimmed their forecasts for CBS. For the fourth quarter, they expect revenue to decline by 7% to $3.5 billion, with radio off 17% and TV down 10%. Earnings could fall from 54 cents a share to 30 cents, they added.

Wall Street will want to know about the future of CBS' dividend amid rising chatter that it will need to reduce payouts to maintain its debt ratings in the face of slowing financial momentum. Downgrades to debt ratings make borrowing more expensive for companies.

Also, expect questions about the debt troubles of controlling shareholder Sumner Redstone during the CBS and Viacom conference calls.

Miller Tabak analyst David Joyce recently reduced his earnings estimates for Viacom, citing the two trends affecting all sector biggies: slowing DVD sales and ad revenue.

DVD sales might have dropped 10% during the fourth quarter, instead of the 5% gain he originally forecast, Joyce said. And his ad-revenue estimate went from 4% down to 6% down.

That leads Joyce to project a fourth-quarter revenue decline of 3.1% for Viacom, to $4.1 billion, and profit of 79 cents a share, down from 83 cents last year.