WMG discontinues dividends

Cites 'conservative approach' after reporting Q2 profit dip

NEW YORK -- Warner Music Group said Thursday that it is discontinuing dividend payments to conserve cash and lower debt amid a sluggish global economy, deteriorated credit markets and continuing music market turmoil.

The news overshadowed better-than-expected Q2 revenue, dragging down shares 1.8% to $8.89.

"While an uncertain economic backdrop and evolving recorded music industry make a conservative approach to our balance sheet a prudent strategy, we remain excited about the long-term prospects for our business," chairman and CEO Edgar Bronfman Jr. said. He added that WMG is not ending its dividend payments out of fear it would miss any debt covenant provisions.

As of March 31, the company had a cash balance of $249 million.

"WMG is facing a conundrum in balancing the need to invest further to gain scale as a 360-degree music company versus its balance sheet constraints," said Goldman Sachs analyst Ingrid Chung, adding though that the end of the dividend boosts its financial flexibility.

She suggested that investors remain on the sidelines until the returns from $400 million-plus investments in new labels and 360-degree music initiatives become clearer.

Bronfman declined comment on the status of talks about Metallica's WMG contract, which will end after one more album release.