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 CBS reported Q2 numbers that were basically in line with consensus this morning -- revenue of $3.9 billion, vs. $4.1 consenus; adjusted EPS of 53 cents, vs 51 cent estimate -- but that just means that CBS proved why Wall Street now hates the company. Revenue was up just 1%, while operating income, free cash flow and earnings are all dove down -- that's because ad sales, whch are down, are much higher margin than syndication sales, which are up.
This is the problem with running a company that's almost entirely dependent on ad revenues -- unlike Viacom, News Corp, Disney and NBC U, there's nothing else to buffer the downturn. The real culprit here, CBS says, are local ads, which are terrible; national ad sales doing better. Overall: TV ad sales down 6%, radio 9%.
REVENUE: $3.9 billion, up 1%
OPERATING INCOME: $637 million, down 15%
FREE CASH FLOW: $464 million, down 18.6%
EPS (adjusted) 53 cents, vs 57 cents last year.
CBS' CNET deal doesn't get factored into last quarter's results, but that won't help much next quarter, either: Goldman estimates that even with CNET baked in, digital will make up about 6% of total revenue. And while CBS had previously predicted that operating income would grow 3 to 5% this year, it's now predicting that it will be flat. At this point all Les Moonves can promise shareholders is that he'll be buying some of their beaten-up stock: He'll sell 50 stations (he hasn't determined which ones yet) and use the proceeds to buy back shares.
CALL NOTES:
Joining call late, and it's very hard to hear Sumner Redstone, who sounds very faint. But he seems to be praising Les, and saying that it's not his fault that there's an ad slowdown, and that Les is managing for the long-term.
Les: "Clearly challenged" by economic problems everyone is facing. Local TV particularly bad. But we're throwing off lots of cash! (Sumner said same). FCF up 6% in first half of 2008. (But DOWN in second quarter, which Les doesn't mention).
Bigger picture: Shaking up asset mix: Dumping 50 mid-size stations, buying CNET. We're cost cutting. And we're raising the dividend, again.Translation: Stock may be dropping, but you'll get something out of holding our shares. Please don't dump any more of our shares.
TV revnues: Up 2%, but OIBDA down double digits (crappy ad sales). But network ads doing well. High single-digit CPM increases during upfront. Scatter pricing remains strong. Local TV terrible, though: Autos hit badly. Political dollars "helping fill the gap somewhat". Licsensing fees, syndication doing well (selling CSI, Showtime shows, etc) which is why revenues are barely up instead of down. Showtime added 1.4 million subs in last year.
Radio: Bad, too. But we knew that. And we're selling those stations. AOL deal will help. And our stations are going to be on the iPhone!
Digital: CNET deal makes us a top 10 player. Search generates most digital revenue now, but engagement will be a bigger deal, and that will be good for content players like us. You want synergy? We'll give you synergy: CBS used lots of CNET talent during iPhone launch, and directed traffic there. Mass reach of broadcast can drive traffic online. Meanwhile we can use CNET to shilll for CSI, etc. We got 200 million impressions for CBS properties on CNET in July (for free? ruh roh).
Q&A: More detail on radio stations you're selling? "Fluid" $300M in revenue and $150 in OIBDA. But doesn't sound like they've decided which stations they're selling.
Hey Les, who do ratings look for the fall? We've hit the ground running, and we've got more pilots than other people, and they're good. The critics like them. Upfront much better than we thought (and better for everyone, too). Sports looking good, football looking great.
Who's going to buy the radio stations? And when? Preliminary - very preliminary - discussion with strategic buyers. Still "fluid" though. Sounds like mix will differ depending on who's buying. Would like to do deal soon, would close in first quarter. Approval process takes a while.
Why use radio money for stock buybacks instead of M&A? Les: Well, we don't rule anything out. "If there is a great opportunity" we'll look at it. But we're not dependent on that money for M&A anyway, because we're throwing off plenty of cash.
Anything funky with upfronts? Buyers holding off on commitments till later in year or next year (ie are some of the upfront sales likely to disappear)? Les: No, noting different than other years.
What's going into CBD interactive division? CNET, plus existing CBS properties, which were already doing $200M in annual revenue.
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