U.S. News

CBS Profit Falls on Tax Charge, but Revenue Climbs


Media company CBS said its first-quarter earnings fell, but revenue climbed from the same quarter last year, after a tax charge related to the sale of radio stations hit the company’s bottom line.

CBS Corp. said quarterly earnings fell about 6%, hurt by taxes on the sale of radio stations, but revenue still beat expectations with help from its publishing division Simon & Schuster.

CBS, which runs the most-watched U.S. television network, confirmed that operating earnings and revenue should be similar to what it reported for 2006, but the overall reaction to its first-quarter was mixed. Shares rose .

While Deutsche Bank called the results "nicely ahead" of forecasts and maintained its "buy" rating on the stock, Goldman Sachs noted "sub-par" growth and reiterated a "sell" rating.

CBS, which split from Viacom Inc. in January 2006, reported first-quarter net earnings of $213.5 million, or 28 cents a share, compared with $226.9 million, or 30 cents a share, a year earlier. Adjusted for the radio station sales, earnings from continuing operations rose to 33 cents from 31 cents.

Those earnings compared with analyst expectations of 32 cents, according to Reuters Estimates.

Revenue rose 2% to $3.7 billion, surpassing the $3.59 billion analysts had forecast.

The revenue growth reflected growth at its television and outdoor advertising divisions, and a sharp jump at its publishing division thanks to healthy sales of top books like the best-selling title "The Secret".

But CBS' radio division, which recently made headlines when it dropped talk show host Don Imus because of controversial remarks he made in reference to a women's college basketball team, suffered from a weak advertising market.

Revenue there dropped 9%, as CBS continued to struggle to replace shock jock Howard Stern, who defected to satellite radio last year. The loss of Imus, however, should not hurt the division's performance, executives said.

TV Revenue Up With Super Bowl

At CBS television, home to hit shows like "CSI," revenue rose 2% to $2.6 billion in the first quarter, when it broadcast the Super Bowl and the popular semifinals of the U.S. college men's basketball tournament.

But Goldman Sachs analyst Anthony Noto said in a research note that TV ad revenue would have dropped about 5% without the Super Bowl and even more without basketball.

"Even with the unique benefits of the Super Bowl and the timing of the NCAA tournament, CBS continues to deliver inferior revenue growth," he said.

TV operating income before depreciation and amortization, a key measure of media industry profitability, fell 6 hurt by the absence of syndication sales that existed a year ago, like those for the comedy show "Frasier."

Outdoor advertising revenue, which includes outlets like billboards, rose 2%. Publishing was particularly strong, with revenue there up by 27% as titles like "The Best Life Diet" sold briskly.

"Overall, CBS is managing nicely through a number of operating challenges, while also continuing along its track of not doing dilutive acquisitions and returning capital to shareholders," Deutsche Bank's Doug Mitchelson wrote to clients.

For the remainder of the year, CBS said revenue and operating income will be comparable to 2006, echoing previous comments. Longer term, it forecast low single-digit growth in revenue, mid single-digit growth in operating income and high single-digit growth in earnings per share.

As part of a growth plan, Chief Executive Leslie Moonves has tried to reposition CBS by moving it further into new media, reaching deals with Internet properties like Google's YouTube video sharing site and Yahoo.

It has also recently taken steps toward building up a feature films division, hiring a former Paramount Pictures executive to help oversee the business.

CBS is divesting radio stations, too, completing the sale of stations in Kansas City, Columbus, Fresno and Greensboro, in the first quarter. That resulted in a pretax gain of $3.4 million and tax expense of $43.5 million.