CBS sales stymie Wall Street
CBS profits jumped 26% but sales were flat last quarter — results that had some Wall Streeters acting like the bloom’s off the rose at Sumner Redstone’s new favorite company.
“In Les (Moonves) we have the best executive in the media industry,” Redstone said, opening a conference call to discuss the numbers.
But analyst reactions ranged from an outright sell recommendation from Goldman Sachs to a buy from Merrill Lynch. It’s a reminder that CEO Moonves is a top-rate exec, but one presiding over two challenging businesses — network TV and radio.
CBS posted earnings from continuing operations of $324 million, fueled in part by lower taxes and interest rates. Figure excludes the profits of Viacom, which split from CBS in January, and Paramount Parks, sold in June.
Revenue was flat at $3.4 billion as growth at outdoor advertising and publishing was offset by a decline in radio, the shutdown of UPN and lower homevid sales due to the switch this year from self- to third-party distribution.
In television, CBS’ biggest business, operating income rose 10% to $414 million. Revenue was flat at $2.15 billion as advertising eased 3%.
Moonves assured investors that the CBS network “will turn positive in revenue” in the fourth quarter.
Company cited the shutdown of UPN in September and the absence of the Primetime Emmycast this year vs. last. Also, homevid revenue plunged 35%.
License fees rose 7% and affiliate fees were up 6%.
TV results included $10.1 million worth of stock-based compensation in the 2006 quarter vs. $2.1 million a year earlier.
CBS radio profits fell 10% to $202 million. Revenue dipped 6% to $508 million, reflecting the impact of programming changes at 27 owned stations (no more Howard Stern) coupled with continued overall weakness in the sector.
Figures include severance costs for more than 100 staffers who were let go at the start of the quarter.
CBS is looking to pare down the division and has so far announced deals worth a total of $570 million to sell 29 stations in smaller markets.
Outdoor advertising — the company’s surprise new star — saw profit surge 34% to $89 million.
Revenue rose 9% to $536 million.
At Simon & Schuster, publishing profits fell 13% to $20 million. Revenue was up 2% at $197 million. The bestseller for the quarter was Bob Woodward’s “State of Denial.”
Moonves has been active on the digital front but told investors he has no plans for a major acquisition — be it Internet company or movie studio.
“Right now, the CBS Film Studio is me. I’ve hired no one,” he said. “We are putting together our fact-finding sheet to see how to proceed.”
That said, the Eye has about $3 billion in cash burning a hole in its pocket.
Company said it’s asked the board to approve a share buyback of $1 billion-$1.5 billion. It could use $150 million-$200 million to fund its pension plan.
Chief financial officer Fred Reynolds noted that CBS has been focused on expanding in outdoor and that it has to meet $625 million a year in dividend payments.
“I have to make sure that we have enough fuel in the tank to make sure we can go where Leslie and Sumner want us to. That’s a big commitment,” he said.