Conglomerates Ready to Report Earnings

NEW YORK -- Continued TV advertising improvements and flat to mostly lower studio results because of tough year-ago comparisons -- those opposing forces are expected to be recurring themes of the latest financial reports from entertainment conglomerates this week and next.

Most sector biggies should have improved their operating profit in the latest quarter in the single-digit percentage range, while revenue trends will range from slightly up to slightly down depending on the company, according to Nomura Securities analyst Michael Nathanson.

Time Warner opens the conglomerate earnings parade Wednesday morning, and some analysts project it will have one of the weaker outings amid tough year-ago comparisons.

Management has previously highlighted tough year-ago film comparisons for the third quarter. After all, Inception did well but was no match for Harry Potter and the Half Blood Prince and The Final Destination in the year-ago period, which also benefited from additional revenue from The Hangover.

Helping to offset the resulting studio somewhat will be solid TV syndication sales for the likes of Two and a Half Men.

Meanwhile, TW’s TV networks unit is expected to record revenue and profit gains amid solid advertising trends.

Nathanson expects all of this to lead to about flat revenue for TW and a slight profit decline.

On Wednesday afternoon, Rupert Murdoch’s News Corp. unveils its latest set of financials.

Again, tough film comparisons will play a role as The A-Team and Knight and Day were weaker than last year’s Ice Age: Dawn of the Dinosaurs. Nathanson predicts a 30.5% revenue decline and a 35.3% operating income drop in the film segment.

The continued struggle of MySpace will also be a drag on the results as will be the lower ratings for Fox, which, some analysts predict, may take a write-off for canceled show Lone Star.

But “the rebound at the TV stations will offset further weakness at Fox Network,” Nathanson said. He expects TV station revenue to be up 25% in the latest period. Plus, everyone is sure that the cable networks business will once again be a key growth unit for News Corp.

Taken together, Nathanson expects a slight revenue decline and a profit uptick.

CBS Corp. will follow with its third-quarter earnings report Thursday with similar expectations for strong TV ad growth. Nathanson projects 25% growth for local TV stations, a 6% gain at the radio unit and also a 6% ad improvement at the CBS network.

But syndication results may be weaker this time around given big deals in the year-ago quarter.

As every quarter, Wall Street observers will pay particularly close attention to what CBS CEO Leslie Moonves says about the outlook for the ad market, which affects the way the Street thinks about all major media stocks.

Viacom and Disney are expected to give entertainment giants’ earnings season a strong finish on Nov. 11.

Viacom has signaled that U.S. advertising growth will see further improvements over the previous quarter thanks to the success of the likes of Jersey Shore. Nathanson forecasts 5.5% U.S. ad growth, compared with 4% in the second quarter, and summarized his expectations with a Shore reference: “Expect more fist pumps to come.”

However, Viacom’s film unit faces tough comparisons with the year-earlier G.I. Joe: Rise of Cobra and additional money from the Transformers sequel. Even though the latest quarter did get a late boost from the DVD release of Iron Man 2, profit is expected to be down in the film unit, but more than offset by gains on the TV side.

Some analysts expect the company could exceed financial expectations. "Viacom is the most likely company to show a positive earnings surprise," Gould said.

Finally, Disney is expected to report financial gains driven by its studio and consumer product segments. The former posted a year-ago loss and should swing to a solid profit with the help of Toy Story 3.

Stifel, Nicolaus analyst Drew Crum projects a studio profit of $100 million-plus.

Broadcast results are also expected to have benefited from stronger ad sales, with Crum predicting a 26% gain at Disney’s TV stations, while cable networks will be negatively affected by some recent deferred revenue issues.

Besides the ad outlook and returns to shareholders via dividends and stock buybacks, key topics on earnings calls are expected to be retransmission consent/TV network carriage disputes and the latest trends in digital distribution.