CBS Q2 Earnings Edge Higher

CBS to sell 50 midsized radio stations, wraps acquisition of Latin American outdoor-advertising company IOA.

CBS reported slightly improved second-quarter earnings Thursday -- in line with stock analysts' forecasts -- carried by TV-program syndication, both domestically and internationally, and outdoor advertising.


Local advertising was down at CBS-owned TV and radio stations, which is the case across broadcasting for the second quarter. However, CBS said national advertising for both the upfront and ongoing scatter market remain strong for its network TV.

Net income in the quarter ended June 30 climbed 1.1% to $408.4 million from $404 million. Earnings on a per-share basis rose 11% to $0.61 from $0.55 due to stock buybacks, which shrinks share count. Second-quarter revenue edged up 0.6% to $3.39 billion.

The earnings were mixed because excluding onetime items from restructuring and a gain from selling a stake in Sundance Channel, and also stock compensation, per-share earnings on an adjusted basis were 53 cents, down from 57 cents.

Also reflecting the mixed nature of CBS earnings, its operating income before depreciation and amortization (OIBDA), which excludes noncash items, fell 12% in the second quarter to $760.4 million.

Besides owning broadcasting properties, CBS also operates the Showtime premium pay service, book publisher Simon & Schuster and a large outdoor-advertising business.

With the earnings, CBS announced that it would sell 50 midsized radio stations so it can focus on its big-city radio properties, and the company also wrapped its acquisition of Latin American outdoor-advertising company IOA (International Outdoor Advertising Group).

TV-segment OIBDA profit slipped 10% to $495.6 million, although that wasn’t as much as the corporate decline of 12%. TV-segment revenue climbed 2% to $2.2 billion, which surpassed the 0.6% corporate revenue rate.

A press release announcing earnings quoted executive chairman Sumner Redstone and president CEO Leslie Moonves as saying results were good, especially given difficult economic conditions.

“I'm pleased that we have maintained our ability to grow revenues and generate strong free cash flow of more than $1.4 billion in the first half of 2008, up 6% over the first half of 2007,” Moonves said in a statement.

For the full year, CBS is forecasting that OIBDA profit will grow in the low-single-digit percentage. That forecast excludes contribution from newly purchased CNET Networks. After a conference call with the company, some analysts lowered their CBS forecasts due to a ripple effect of a weaker economy.

The company hit hard with a message on its conference call with stock analysts that it will be a big player in digital media, and it said its digital assets will be a separate business segment broken out in CBS earnings starting in the third quarter.

Analysts have been critical of CBS’ buy of Web-information outfit CNET for $1.8 billion, which wrapped as the second quarter ended and which is the centerpiece of its digital segment. CBS brass said its digital business generates in the mid-$600 million range in annualized revenue and CBS’ goal is to raise that to $1 billion in three years (CBS' total revenue currently runs at $14 billion annually).

In comparing the top 20 advertisers on CNET and CBS, the company found that only three appeared on both lists, so it plans to aggressively cross-sell, which it feels will yield easy gains.

“We believe [CNET] will add at least two percentage points to our revenue and profit growth rates going forward, in addition to being accretive to earnings and free cash flow in 2008,” Moonves said.

In its prepared presentation, CBS did not even mention retransmission-consent revenue, which it talked up in the past. Those are fees broadcasters collect from cable and other multichannel platforms for the right to carry local TV channels when broadcasters opt out of must-carry.

“In terms of retrans, we are in active discussions with some of the larger guys and we are very confident,” Moonves said in an answer to a question during the conference call. “They are progressing along very nicely. We don’t make a big deal about it. As you know, we’ve done [deals with] about 25 of the smaller MSOs. We are in conversations with the larger ones -- very productive conversations. So I am guardedly optimistic that it will all go well without making a lot of noise, except that at the end of the day, there will be more revenue for the CBS Corp.”