Radio division continues to struggle

CBS posted higher earnings for its second quarter Thursday on unusual items including a tax benefit and a gain on the sale of its parks division, but revenues declined on weakness in radio.

The broadcasting company earned $781.7 million, or $1.02 per share, for the three months ended June 30 versus $753.8 million, or 94 cents per share, a year ago. The year-ago figures included results from Viacom Inc., which separated from CBS at the beginning of this year, as well as results from its parks division, which it later sold.

Television revenues edged down 1 percent, which came as the company switched to third-party distribution for home entertainment sales, changing the accounting for revenues but not profits, CFO Fred Reynolds said on the conference call.

Television advertising was relatively flat compared with a year ago, and operating income before depreciation and amortization fell 2 percent, mainly because of $24 million in costs related to shutting down the UPN network and higher stock-based compensation.

The most recent figures included a tax benefit of $129 million and earnings from discontinued operations of $291.9 million, which mainly reflected a gain on the sale of its Paramount Parks division to Cedar Fair LP.

Excluding those items, CBS earned $360.8 million, or 47 cents per share, versus $380.1 million a year ago, which was also equivalent to 47 cents per share due to a lower amount of shares outstanding.

Analysts polled by Thomson Financial had been expecting earnings of 50 cents per share. CBS’s shares fell $1.11, or 4.1 percent, to $26.04 in morning trading on the New York Stock Exchange.

Revenues decreased 1 percent to $3.48 billion from $3.51 billion in the year-ago period, as gains in outdoor advertising and book publishing were offset by weakness in radio and a slight decline in television.

CBS’s radio division continued to struggle. Revenues there declined 8 percent, which the company attributed to weakness in the radio advertising market as well as programming changes at 27 stations, which lost Howard Stern at the beginning of the year when the shock jock jumped to Sirius Satellite Radio Inc. Operating income before depreciation and amortization fell 19 percent.

The declining profitability in radio also reflected a year-ago gain of $15 million from the sale of one of its stations. After the quarter ended, CBS Radio also cut 100 jobs.

CEO Leslie Moonves said on a conference call with analysts that CBS’s radio stations were making progress in offering new programming and were seeing encouraging results in several major markets during the key morning drive time slot. Moonves said he expected to have news soon on the company’s previously announced decision to sell a number of stations in smaller markets.

“We remain concerned about deteriorating fundamentals at the CBS broadcast network given the recent ratings decline” as well as flat pricing for advertising sold in advance of the upcoming fall season, Sanford C. Bernstein analyst Michael Nathanson wrote in a note to investors.

Moonves also said on the call that the company was seeing rapid growth in its digital businesses, but he declined to provide specific numbers or forecasts, other than to say they would amount to “hundreds of millions of dollars.”

The company did not indicate what it planned to do with the $1.24 billion in cash proceeds it received for the parks sale. Reynolds said the company was considering acquisitions, but only if they were more compelling than returning cash to shareholders.

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