on August 1, 2008 by in Uncategorized, Comments (0)

CBS posts higher profit on gain but cuts outlook

NEW YORK (Reuters) – CBS Corp cut its full-year profit outlook and said it planned to sell 50 radio stations, after second-quarter advertising sales fell due to weak prime-time TV ratings and a slump in radio ad sales.

The company, whose shares fell 2.5 percent, reported a 1 percent increase in second-quarter profit on Thursday, thanks to a gain on the sale of the Sundance Channel.

But profit excluding that and restructuring charges was 49 cents per share, according to Reuters Estimates, missing the average Wall Street forecast of 51 cents.

Whipped by the U.S. economic downturn and a slump in ad spending by the automotive and other industries, CBS said it now expects 2008 operating income before depreciation and amortization to rise by a low single-digit percent, and operating income to be flat compared with 2007. It had formerly predicted rises of 3 to 5 percent for both measures.

CBS is further evidence of weakness in U.S. television ads that has weighed on other big media peers including Viacom Inc and, to a lesser extent, Walt Disney Co.

“While national business is holding up well, this softness in the marketplace is being felt mostly on the local level through no fault of management; this adversely affects CBS’s local, radio and television station,” CBS Executive Chairman Sumner Redstone told investors on a conference call.

CBS is seen to be among the most exposed to an advertising downturn because it relies so heavily on its TV network.

“Automotive accounts for the largest share of local advertising (and) has been the hardest hit. The good news is that political dollars are helping fill that gap somewhat,” said Chief Executive Leslie Moonves.

CBS, which also owns film and outdoor advertising businesses, said second quarter earnings rose to $408.4 million, or 61 cents a share, from $404 million, or 55 cents a share, a year earlier.

Excluding the Sundance sale, restructuring charges and stock-based compensation expense, CBS posted a profit of $355.3 million, or 53 cents per share.

Revenue rose 1 percent to $3.4 billion, in line with Wall Street expectations.


Proceeds from the sale of CBS radio stations will be used to fund a share buyback. The company has held preliminary discussions with a range of buyers for these stations, Chief Financial Officer Fred Reynolds said on the call.

The stations and markets under consideration will likely account for about 15 percent of CBS’s radio revenue base, or about $300 million, and about 10 to 12 percent of its operating profit before depreciation, or about $100 million, he said.

CBS completed the estimated $1.8 billion purchase of technology news and reviews site CNET in the quarter, which Moonves said would add 2 percentage points to revenue and profit growth rates and will be accretive to earnings and free cash flow in 2008.

“We will be a major player in the newest and most important distribution platform for premium content,” the CEO said.

Beginning in the third quarter, CBS will report the progress of CNET and other digital businesses under a separate Interactive segment.

Television revenue rose 2 percent to $2.2 billion from higher license fees and affiliate revenue. But ad sales fell 6 percent from weakness at local TV stations and lower prime-time ratings. Operating income fell 12 percent.

Its network last season lost its spot as the most watched network to News Corp’s Fox, whose “American Idol” dominated ratings while other broadcasters struggled to get past a 14-week strike by screenwriters. CBS has also faced nagging questions about the future of Katie Couric as its evening news anchor, given that broadcast’s low ratings.

Radio has been a persistent weak spot, even as the company has tried to revive the business with new management and a change in formats at some key stations. Revenue fell 10 percent to $416.4 million, and operating income fell 16 percent.

CBS’s outdoor ad revenue, a bright spot in prior quarters, rose 8 percent to $598.1 million, buoyed by the impact of foreign currency fluctuations. But operating income plunged 20 percent on weakness in North America.

Publishing has also been a bright spot for CBS, but Simon & Schuster’s revenue in the second quarter fell 7 percent from a year ago, when it had a huge hit in “The Secret.”

Shares of CBS, which are down almost 40 percent this year, fell 41 cents to $16.47 on the New York Stock Exchange.

(Additional reporting by Paul Thomasch; Editing by Derek Caney, Gerald E. McCormick, Dave Zimmerman)