CBS CEO: Ad recovery gaining steam

Q2 profit drops 96%, stock up in after-hours

NEW YORK - CBS Corp. on Thursday reported a 96% drop in second-quarter profit as revenue fell 11% amid advertising woes due to the recession, but the bottom line figures exceeded Wall Street expectations.

While Wall Street and most in the industry have remained cautious about the ad outlook, CBS management once again came in more bullish than most.

President and CEO Leslie Moonves said in his earnings conference call that ad sales have improved sequentially in the second quarter and beyond as year-over-year declines are getting less steep.
The ad recovery for CBS's businesses began in the second quarter and has been "gaining steam in the third," he said. "Improvement has been very steady and very real." He added that with the third quarter looking stronger than the second, the fourth should also be stronger than the third.

CBS shares rose sharply in after-hours trading, even though analysts on the call raised some doubts about how quickly the ad market will be able to recover and return to growth mode.

Moonves also said the company is close to the finish line in its upfront sales negotiations, in which it has sold less ad volume. But despite downward pricing trends across the industry, CBS's upfront revenue is flat for the percentage of inventory sold so far, he said.

The firm is withholding a bigger amount of ad inventory for later sales - around 35% compared to 20%-25% last year - as scatter prices are up in the third quarter with solid interest from telecom, retail and fast-food restaurants, Moonves said. Overall, third-quarter CBS network scatter revenue is up 30% from the year-ago period, he said, adding that the quarter could turn positive in terms of year-ago comparisons.
He also said his network  ad sales team has asked for possible additional ad slots to address the demand, which Moonves added could come in reality TV shows.

Asked about auto ad trends, Moonves said the "cash for clunkers" government program has been a shot in the arm, and he expressed hope that auto firms may have more marketing dollars available to spend again down the line. 

Despite the improving ad trends, the economy is "still very tough," and ad sales continue to happen closer to air time.

Moonves Thursday also predicted a strong debut next year for the CBS film business, with "The Back-Up Plan," a romantic comedy with Jennifer Lopez, set to open Jan. 22, followed by a Harrison Ford drama in March or April and the summer release of "Beastly," a modern take on "Beauty and the Beast." Moonves said all of these films came in with the promised moderate budgets of less than $40 million, one of them even cost less than $25 million, which he said should ensure high returns.

After the market close, CBS posted a profit of $15.4 million, compared with $408.4 million in the year-ago period on revenue of $3.01 billion, down from $3.39 billion. Adjusted for special items, CBS’s quarterly profit of $57.4 million compared to $330.1 million in the year-ago period. Operating income amounted to $242.2 million.

UBS analyst Michael Morris had forecast quarterly revenue to be down 10.4% to $3.04 billion, with operating income off 66.8% to $211 million.

Importantly, CBS, which is the most ad-dependent of the major U.S. media and entertainment companies, said TV ad revenue fell 13%, while TV license fees dropped 6% and affiliate revenue rose 10%. This left total TV unit revenue down 10% at $1.95 billion.

Said executive chairman and controlling shareholder Sumner Redstone: “Leslie and his management team continue to run CBS with a sure and steady hand.” And he added that the goal remains to position CBS as “one of the leading beneficiaries in an economic recovery.”