Street cashes in on summer b.o.
Film results to be at core of Viacom, TW, Disney, News earningsSolid film results and mixed TV figures will be core themes of this earnings season for media and entertainment giants.
After the recent solid financial update from General Electric and its entertainment arm NBC Universal, Sony Corp. — which isn't tracked by many analysts in the U.S. — reports Thursday.
But next week, earnings season for U.S. sector biggies kicks into high gear, led by CBS Corp.'s third-quarter report.
CBS has seen analysts reducing estimates and cutting stock recommendations amid concerns about momentum in core businesses.
For example, Deutsche Bank analyst Doug Mitchelson this month lowered his rating on CBS shares from "buy" to "hold" and cut his price target by $2 to $33, citing "soft ratings trends and poor local ad growth."
Meanwhile, Miller Tabak + Co. analyst David Joyce cut earnings estimates, its stock rating from "buy" to "neutral" and his price target by $2 to $35.
He predicts third-quarter revenue of nearly $3.3 billion, which would be a 2.5% year-over-year decrease, and operating income before depreciation and amortization of $744 million, a 1.5% drop.
"Our largest estimate decreases come from the challenged radio business, which has had industrywide as well as company (Don Imus) issues," he said. Nonetheless, Banc of America analyst Jonathan Jacoby predicted that CBS "should deliver an in-line quarter." Like Joyce, he projects about $3.3 billion in revenue. But Jacoby also recently reduced his profit estimate by 2 cents to 44 cents per share because of a higher tax rate of 39%.
Expect analysts to seek early guidance for 2008 on the CBS call. "Our concern is that the operational headwinds will reign supreme in 2008," Jacoby said.
A day after CBS, the other Sumner Redstone-controlled entertainment biggie, Viacom, steps up to the earnings plate, with film results expected to be strong and cable networks financials to solidify.
On the film side, analysts expect the international success of "Shrek the Third" plus the boxoffice run of "Transformers," most of whose expenses were taken in the previous quarter, to benefit Viacom.
Plus, Bear Stearns analyst Spencer Wang recently said that ratings data for the firm's cable networks suggests "that ratings are flattening out for Viacom in the third quarter" after several periods of clear declines.
The performance improved during the third quarter as ratings fell 6% year-over-year on average in July. But by the end of the quarter, the decline stood at a modest 1.5%, he said, predicting a ratings recovery in the current fourth quarter.
Overall, Wang raised his quarterly profit forecast by 3 cents to 59 cents a share "to factor in stronger affiliate revenue growth and higher studio earnings."
Goldman Sachs analyst Anthony Noto recently forecast a 20% third-quarter revenue gain to $3.19 billion at Viacom, ahead of the $3 billion Street consensus, and earnings of 58 cents per share, slightly below the 60 cents consensus.
Meanwhile, Time Warner's earnings report is expected to exhibit continued weakness in its cable and AOL businesses, "with some offset by strong film results" and solid TV network trends, Jacoby said.
In a recent report, he lowered his TW Cable OIBDA estimate for the quarter by about $24 million and warned of display advertising weakness at AOL.
"In the positive column, we are raising film due to strength of 'Potter,' AOL sub revenues due to a slower churn and (TV) networks with slightly better ad revenues," Jacoby wrote.
Overall, he forecasts TW revenue to grow 8% to $11.7 billion for the quarter and OIBDA to rise 12% to $3.2 billion.
Disney's quarterly earnings reports have been beating Street estimates, and things might not be much different this time.
Noto this week boosted his fiscal fourth-quarter estimates for Disney to $8.7 billion in revenue, a slight uptick; to $1.7 billion in operating income, up 17%; and to 42 cents per share, ahead of the 41 cents consensus.
He predicts double-digit growth at Disney's theme parks unit and cable networks. Also, he forecasts "strong performance from 'Ratatouille' and 'Pirates' with the P&A expense hitting the prior quarter, easing tough studio comparisons."
Jacoby predicts revenue of $8.8 billion and operating income of $1.7 billion.
Finally, News Corp.'s first fiscal quarter features easy film comparisons, "partially offset by accelerated depreciation in newspaper and a tough broadcast environment, and upfront costs associated with Fox Business Network," Jacoby said. He forecasts revenue of $6.7 billion and operating income of $963 million.