CBS announced second-quarter earnings that disappointed on the top line, beat expectations on the bottom line, and landed flat with growth-hungry Wall Street. Revenue disappointed--down 3% to $3.37 billion on a loss of TV revenue from shutting down UPN and the timing of the NCAA basketball tournament.
But earnings--excluding a significant tax benefit--were 54 cents a share, three pennies more than the consensus analyst expectation of 51 cents a share. Even though CBS is expected to be slower growing than Viacom , its growth projections are still pretty sad. CBS saying 2007 revenue and operating income would be pretty much flat and that revenue growth will only be in the low single digits and mid-single-digit growth in operating income. EPS are projected to grow in the high single digits, but majority owner Sumner Redstone is also talking about stock buybacks.
TV revenue fell 4% to $2.16 billion. Taking into account the end of UPN, the issue is how CBS is keeping up with rival networks. Industry-wide ratings are down, but cost per ratings point are up, to somewhat compensate. One bright spot--revenue for CBS outdoor advertising division grew 4% to $554.2 million. The growth is coming from overseas, while revenue in North America is pretty flat. There's big potential in this division as it makes the shift to digital billboards. CBS Radio has faced some serious blows--losing Don Imusand Howard Stern. This quarter CBS Radio revenue dropped 11%, partly because of the sales of stations in 10 markets. CBS' publishing division Simon & Schusterwas hot--revenue up 14%.
The highlight of the conference call that followed the earnings announcement was a gushing Sumner Redstone--gushing more than one would expect considering that earnings came in just in line with expectations. To be fair, CBS' stock has outperformed the other media conglomerate stocks this year so far. He commented how the company should benefit in 2008 from an increase in political advertising.
But Redstone's glowing comments about CBS CEO Les Moonves seemed determined to make a point, calling him "the best executive in the media industry." Redstone fired Viacom CEO Tom Freston, reportedly in part because he lost MySpace to NewsCorp , so Redstone was careful to praise Moonves. He said Moonves had helped CBS "position itself in the digital landscape" with "smart strategic moves," referring to CBS' acquisitions of radio service Last.fm, financial news site Wallstrip, and an online syndication network.
All of Redstone's confidence and optimism plays into his very public battle with daughter Shari Redstone--sending the message that he has full confidence in Moonves and doesn't need Shari meddling. But if Redstone has so much confidence in Moonves, and CBS has been outperforming Viacom, then why not have Moonves run both companies? It's not out of the question, though more likely that when Redstone eventually passes that Viacom would be split up. Oh, and no one talked about the family's messy fight on the conference call. We'll see if analysts feel like it's a less gauche topic on Thursday's Viacom call.
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