UPDATE 3-Discovery profit down, but ad sales show life

By Paul Thomasch NEW YORK, Nov 3 (Reuters) - Discovery Communications Inc posted a larger-than-expected decline in profit, but stronger U.S. advertising sales stole the show and raised hopes that parts of the media business are finally recovering. The quarterly results make Discovery -- a company whose share are up 93 percent this year -- a rarity in the media business, where advertising sales have been devastated by the recession. The parent of the Discovery Channel, Animal Planet and the Science Channel is typically less reliant on some of the hardest hit U.S. ad categories, such as automakers and financial institutions, for sales. Another factor is that national cable channels -- like Discovery's -- have proven relatively resilient to the downturn when stacked up against local TV or broadcast networks. Discovery's U.S. ad revenue rose 5 percent in the third quarter, and the company said sales would be flat to slightly positive in the fourth quarter. "People are going to be most concerned with how the ad revenue was looking," said Miller Tabak analyst David Joyce, who said Discovery's third-quarter ad sales surpassed his expectations. "Overall, it seems to be an operational outperformance." Profit fell to $95 million, or 22 cents a share, largely because of extra stock compensation expenses. A year ago, it earned $134 million, or 44 cents a share. Wall Street was expecting earnings per share of 27 cents. Revenue rose 1 percent to $854 million, surpassing the $850 million analysts polled by Thomson Reuters I/B/E/S had expected. Another major media company, Viacom Inc, showed a 4 percent decline in quarterly U.S. ad revenue in its report on Tuesday, while executives said trends had improved. . Time Warner Inc and News Corp report earnings on Wednesday. In comments to investors and analysts on a conference call, Discovery Chief Executive David Zaslav stopped short of saying ad sales were fully on the road to recovery. "It is too early to say things have turned, but demand is much improved," he said. But in addition to advertising, Discovery's revenue is also underpinned by the fees it collects from cable companies that carry its channels. U.S. distribution revenue rose 5 percent for the quarter. Discovery shares closed 2.7 percent higher at $28.01 on the Nasdaq on Tuesday ahead of the quarterly results. The shares were little-changed in after-hours trading. (Reporting by Paul Thomasch, editing by Matthew Lewis) (([e-mail] [phone]; Reuters Messaging: [e-mail])) Keywords: DISCOVERY/ (Visit http://blogs.reuters.com/mediafile/ for more coverage at the Reuters MediaFile blog) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved.

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