Facing an increasingly bleak economic picture, media giant Viacomcut its financial outlook for the first year, sending its shares, and shares of other media stocks, falling. The declining advertising markets are to blame.
Viacom said it now expects its third quarter earnings (excluding special items) to come in between 53 and 55 cents per share, while analysts have been expecting Viacom's earnings to come in at 67 cents a share (excluding special items) for the quarter. And worse, the company lowered its earnings expectations for the full year to "mid single to low double digits" down from previous expectations of "low double digits." Viacom reports its full quarterly earnings on November 3rd.
Viacom CEO Philippe Dauman blames the economy's impact on the ad markets, saying in a statement: "Given the rapid softening of the economy and the uncertainty this creates in forecasting advertising growth, we are taking the prudent step of moderating our near term targets."
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Wall Street analysts are concerned about the advertising environment as well. UBS analyst Michael Morris today lowering his estimate for Viacom's EPS in fiscal 2008 and cutting his target price for Viacom to $27 from $35. Morris is worried about ad sales growth at Viacom's cable networks, but he also expects DVD sales to suffer in this economic environment, despite the fact that Paramount will be distributing "Iron Man" and the latest "Indiana Jones" on DVD.
The other media giants inevitably going to be hit by the ad slowdown and global contraction as well, and Morris made a number of downward revisions. UBS lowered its 2008 and 2009 estimates for the entire entertainment universe Morris covers, lowering 12-month price targets for Disney, News Corp , and Time Warner , in addition to Viacom. Morris is particularly concerned about cable advertising and local advertising. In the past five days all the major media stocks have performed worse than the Dow. I'll be watching for more downgrades from analysts that are sure to come.
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