Discovery CEO Touts Ad Outlook, Predicts Olympics Profit, Explains Cost Cuts

Discovery Deal Zaslav - P 2012
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Discovery Deal Zaslav - P 2012

The company's CFO says the financial benefit from cost-cutting measures will come in at two times-plus the $40 million to $60 million in incurred costs.

Discovery Communications CEO David Zaslav on Thursday touted continuing strength in the advertising market, said the company expects its deal to air the Olympics in Europe starting in 2018 to be very profitable and further discussed the rationale behind cost cuts unveiled late Wednesday.

Following better-than-expected first-quarter earnings and the call, Discovery's stock was up strongly in early trading. As of 9:50 a.m. ET, it was up 5.3 percent at $27.99.

Asked about the timing of the company's cost-cutting announcement, Zaslav said Thursday on Discovery's first-quarter earnings conference call that "it was time to drive the left side of the business," signaling a focus on reducing costs on infrastructure and back-office functions to make the company "more efficient" and free up money for content and digital initiatives. He said recent ratings weakness at such networks as TLC and Animal Planet weren't driving the cuts.

CFO Andy Warren echoed that the goal was getting cash to further invest in programming, mobile and direct-to-consumer initiatives, among other things, helping to accelerate growth.

The CFO predicted the measures' financial benefit to come in at two times-plus the $40 million to $60 million in incurred costs that Discovery had mentioned for the voluntary buyout plan for U.S. employees.

Addressing the ad market, Zaslav said it "remains robust," as TV ads are still seen as very effective. Warren said the company expects another strong quarter in the current second quarter.

Zaslav late in the call said that some of the ratings and ad strength of news networks this election season affected Discovery channels in the first quarter.

Explaining Discovery's improved 2016 financial guidance, Warren noted that foreign currency head winds have "begun to subside," with the company now expecting a smaller full-year impact on its financials.

The Summer and Winter Olympics were mentioned on the call as well. "The Olympics will make real money for us on each of the Games," Zaslav stated. Warren added that Olympics revenue would "significantly exceed [our] total cost" for the rights for the 2018-14 Games.