Investors urged to hold, not buy shares
NEW YORK — Viacom took it on the chin Wednesday as chief operating officer Mel Karmazin acknowledged that the giant conglom, faced with higher costs and lower ad revenue, won’t come close to meeting full-year growth targets.
News came as CS First Boston entertainment analyst Laura Martin lowered her ratings on 11 media and cable groups — urging investors to hold, not buy, shares of Viacom, Walt Disney, MGM and USA Networks.
Due to “the extraordinary events surrounding the attacks on the United States last week,” Viacom’s operating cash flow, expected to grow about 13% in 2001, is likely to rise only “slightly higher” from last year, Karmazin stated.
He cited higher costs at CBS News and local TV and radio stations along with a precipitous drop in advertising revenue at stations and broadcast and cable networks. The Latin Grammys were canceled last week, so were football games. The Emmy Awards were rescheduled and the fall season delayed.
Advertisers are back on the air now, but understandably cautious. “Some advertisers believe their current campaigns are inappropriate for today’s business environment and consumer sentiment,” Karmazin said. Viacom, which gets 50% of its revenue from high-margin advertising, continues to “work closely with our advertisers to meet these challenges.”
“Most companies we spoke with believe they will return to normal advertising levels, but are uncertain about the timing. There are also concerns about additional disruptions that could occur following a U.S. response to the attacks,” he added.
Viacom shares fell 1.57% to $31.40 — in line with the broader market. The Dow Jones Industrial Average closed lower 144 points, or 1.6%.
Other media stocks were mixed. AOL-Time Warner, News Corp. and Disney posted moderate gains, while Sony rose 2.48% and USA Networks climbed a whooping 16.31%. Losers included MGM, NBC parent General Electric and Viacom.
The overall market’s off day was nonetheless a triumph since the DJIA had been down more than 400 points early on. A volatile market was shaken Wednesday by analysts’ downgrades of entire sectors and several high-profile profit warnings and layoff announcements.
New York Mayor Rudolph Giuliani warned of economic repercussions ahead.
“We’re going to take a hit. It will probably be a large one,” he said.
While layoffs mounted across the country in industries hard hit by the attacks, such as airlines, he tried to be reassuring.
“Nobody has to lose a job as a result of this. We’re going to have to take a hit to our economy and our budget, but we have a lot of financial support, much more than we had before,” he said.
While reps of the battered airline industry asked Congress for $17.5 billion in emergency relief, American Airlines and United Airlines both announced Wednesday that they would cut at least 20,000 jobs as a result of slower traffic.
Ironically, some believe the market, which hates uncertainty above all else, stabilized after reports that the U.S. was sending planes to the Persian Gulf and that President Bush plans to address Congress and the nation today.