CBS' Q3 down, but dividends near


NEW YORK -- CBS Corp. delighted Wall Street on Thursday with the promise of further dividend increases and a $1 billion-$1.5 billion stock-buyback program next year, but its third-quarter financials seemed to reignite fears that it is a slow-growth company.

Television and radio unit revenue was down, leaving CBS' outdoor advertising division to support results with a solid gain.

Support for his president and CEO Leslie Moonves also was what CBS Corp. chairman and controlling shareholder Sumner Redstone expressed in strong words in a conference call Thursday. With some investors still reeling from his recent decision to suddenly replace Viacom CEO Tom Freston, Redstone called Moonves "the best executive in the industry," adding that he is "more enthusiastic than ever" with what the CEO and his team have done at CBS.

During the call, Moonves lauded the CBS network's new fall shows as promising, predicted that the network will return to revenue growth this quarter and touted Super Bowl advertising rates. He also said he expects that DVR viewership will be included in total ratings next year, promising investors that "we will get paid" for DVR viewing.

When it comes to returning some of its more than $3 billion in cash to investors, management said that it will prefund CBS' pension funds this year, using about $150 million-$200 million. In addition, Moonves said dividends will be the "primary vehicle" to share the company's wealth, with future increases dependent on earnings and cash growth.

The CEO added that early next year, CBS will recommend to its board a $1 billion-$1.5 billion stock-repurchase program -- a move that investors and analysts have been hoping for.

Before the market opened Thursday, CBS said its third-quarter profit fell 55% to $316.9 million compared with the year-ago figure before its split from Viacom Inc. and various asset sales.

Its profit from continuing operations rose 26% from $256.9 million to $323.6 million. Revenue was up fractionally year-over-year from $3.37 billion to $3.38 billion, slightly below the average Wall Street projection.

CBS, which is based in New York, also reaffirmed its full-year guidance calling for low-single-digit percentage growth in revenue, mid-single-digit percentage growth in operating income and high-single-digit percentage growth in earnings per share.

For its television unit, CBS Corp. on Thursday reported a marginal revenue decline to $2.15 billion, while operating income before depreciation and amortization rose 9% to $457.1 million. The unit saw a 3% decline in advertising revenue, and home entertainment revenue fell 35% because of a switch to third-party distribution, but the company reduced expenses, which helped boost the bottom line.

"TV advertising revenue fell 3%, which was worse than our expectation of 1% growth," Merrill Lynch analyst Jessica Reif Cohen said. "This suggests advertising revenue at (the) CBS network fell close to 2% in the quarter." Nonetheless, she reiterated her "buy" rating on the stock and her $33 target price, arguing that CBS remains cheap compared with its peers.

Analysts asked Thursday if Moonves expected more cancellations as CBS' new fall shows are not among the top performers. The CEO said, though, that "Jericho" and "Shark" are "absolute keepers," while he wants to give "The Class" more time to find its audience.

He also lauded "CSI: Crime Scene Investigation" for going "neck and neck" with ABC's "Grey's Anatomy."

Moonves also expressed support for Katie Couric's contribution on the news side of CBS, saying he is "very pleased with the progress" of her show, which he argued has brought in more key younger viewers and millions of additional ad dollars.

Super Bowl ads are going for more than $2.5 million per 30-second spot, according to Moonves, with executives also describing the current scatter market ad rates as healthy and well above upfront levels. Johnson & Johnson, which had skipped this year's upfront, has jumped into the scatter market "in a rather large way," Moonves said.

CBS chief financial officer Fred Reynolds added that political ad revenue has "smashed all previous records" year-to-date and remains strong in the final quarter of the year.

Overall, he said he feels CBS had "a strong start" to the fall TV season.

At the CBS Radio unit, revenue dropped 6% to $508.1 million as the operation remains challenged after the departure of Howard Stern and amid a sluggish radio ad market. OIBDA also fell 10% to $210.2 million because of the lower revenue as well as stock-based compensation and severance costs after recent job reductions.

Management said Thursday that radio station sales are nearly complete, with only Fresno, Calif., and Greensboro, N.C., stations left to divest.

Moonves expressed confidence that the firm can grow radio revenue, saying revenue was up 3% last month when excluding markets where Stern had aired last year. He again lauded Opie and Anthony for doing well with their talk program, which he said is up more than 100% in key markets, including New York.

Asked about the state of CBS' plans to enter the film business, Moonves told Wall Street on Thursday that they are still in the "very early stage" and that he is working on figuring out details for a low-cost and low-risk play.

He also reiterated that CBS plans no large acquisitions. "We are not buying a movie studio," he said, later signaling mainly an appetite for purchases in the digital space. "It's not a bad idea to buy the next YouTube," he said.

Speaking of digital, Redstone and Moonves said they expect more upside on this front for CBS, with the CEO pointing to more than 2 million TV show streams for InnerTube so far this year. Moonves said there is "huge opportunity" and forecast hundreds of millions of dollars in digital revenue for 2007, though he admitted that "it is still too early" for more details.

Radio alone will bring in close to $14 million this year in revenue from digital initiatives, he said.

Despite CBS executives' financial bullishness, some on Wall Street remain more cautious.

While the news of more returns to shareholders "is certainly music to the ears of dividend income-oriented managers," the market Thursday seemed to focus on "what is clearly a mixed bag in terms of fundamentals," Sanders Morris Harris analyst David Miller said.

Goldman Sachs analyst Anthony Noto is particularly bearish. "CBS' results were below our and consensus expectations for the second quarter in a row," he said, adding that this "reinforces our view of CBS' below-average growth."

Class B shares of CBS closed down 0.3% on Thursday at $28.73.