Viacom 2Q Is a Real Crowd Pleaser


Investors drove Viacom's stock up $1.50 to $44.45 last Thursday, the day the company reported record second-quarter revenues of $6.4 billion, up 10% from the same period a year ago, with a 12% gain in operating income to $1.3 billion.

Maybe those results caused the runup. But investor response could have been because Viacom issued an initial quarterly dividend of 6¢ per share, payable Oct. 1 to shareholders of record on Aug. 15.

Analysts applauded Viacom's decision. Morgan Stanley called it the "highlight of quarter" for the company. The Wall Street firm estimated that the dividend will pay investors $420 million annually and said it's a better use of the money than other investments.

"We have been critical of the entertainment companies that generate 5%-6% return of investment on television acquisitions and a 4%-5% return on share repurchases in an effort to supplement their long-term organic growth rates," the Morgan Stanley media analyst team wrote in a report. "All of these investment options are significantly below the 8%-9% expected long-term return on the S&P 500."

It wasn't entirely rosy for Viacom. The company's radio unit Infinity Broadcasting remained a weak link among operating units that otherwise turned in positive results. Radio revenue was down 3% to $551 million for the quarter, with a 5% drop in operating income to $266 million.

But President and COO Mel Karmazin refrained from giving Infinity the kind of tongue lashing he issued three months ago, which was followed shortly by a major management shakeup at the division. Instead, he reported that the division seems to be improving each month.

The cable network division reported the biggest profit figure for the quarter: $493 million, up 33% from second quarter 2002, on a 32% revenue gain to $1.3 billion.

The broadcast TV division showed a 13% gain in operating income to $392 million, with a 10% gain in revenue to almost $1.9 billion. The company said that the station group and networks UPN and CBS each posted an 8% gain in ad revenue for the quarter. Within the station group, KCAL-TV Los Angeles accounted for 4% of the overall increase.

"Our ratings, our brands and our future are all looking better than at any time in our history," said Karmazin, noting that Viacom networks (broadcast and cable) now grab 26% of the available prime time audience.

He claimed that's a 63% advantage over both Disney and AOL Time Warner, which have the next biggest shares of the prime time audience, using total viewers as the yardstick.

Addressing rumors that a good chunk of this year's upfront market might evaporate by the time advertisers place their written orders later this summer, Karmazin said, "We are not hearing anything to be concerned about" along those lines.

He also said the Super Bowl will be 50% sold by the end of July. He didn't dispute reports that CBS is charging $2.4 million per 30-second unit for it.