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CBS posts 52% profit drop, slashes dividend 81%

The media giant, which is highly dependent on advertising sales, swings to a loss for the year. Analysts hadn't expected such a dramatic dividend cut, but several say the move makes sense.

February 19, 2009|Meg James

Seeking to preserve cash amid the troubled economy and slowdown in advertising sales, CBS Corp. on Wednesday slashed its dividend payment to investors and reported a 52% drop in net income for the fourth quarter.

Like other media companies that own local TV stations, CBS has been hit hard by the recession, which has crippled two of its biggest buyers of commercial time -- carmakers and dealerships. Revenue to the company's radio and billboard divisions also sank.

For the quarter that ended Dec. 31, the company said net income fell to $136.1 million, or 20 cents a share, compared with $286.2 million, or 42 cents, a year earlier. Revenue was down 6% to $3.5 billion.

CBS derives two-thirds of its revenue from advertising and thus is particularly vulnerable to an economic downturn.

"We are operating in a very difficult environment," CBS Chief Executive Leslie Moonves told analysts in a conference call. He predicted that results would improve in the second half of the year because of the CBS network's resurgence in prime time and locked-in syndication sales of five popular programs, including "Criminal Minds," "Medium" and "Ghost Whisperer."

Nonetheless, the CBS board was not taking chances. It lopped the quarterly dividend to 5 cents a share from 27 cents, effective with the April payment. CBS has paid a generous dividend, giving out $5.5 billion in cash to shareholders during the last three years. The company said it was reducing the dividend so it would have the funds to retire $1.6 billion in loans that are due next year as well as protect the company's credit rating.

The more than 80% dividend cut was twice the amount that Wall Street had been anticipating. But several analysts said the more drastic move made sense -- and signaled the seriousness of the situation.

"CBS is attempting to do all the right things from a credit perspective," said Barclays Capital credit analyst Scott Shiffman. "But we think the company is not out of the woods yet."

Shiffman pointed out that CBS' cash flow would continue to be under pressure. "There is a level of uncertainty about CBS' ability to self-finance its debt maturities. We cannot predict the pace of cash-flow deterioration," he said.

Michael Nathanson, media analyst with Sanford C. Bernstein & Co., agreed. "The question that no one can answer is how bad 2009 will be for these guys."

Nathanson said that though CBS' earnings "were pretty bad, we actually thought they were going to be worse."

Apparently, so did investors. CBS stock ticked up 22 cents to $5.13 a share in after-hours trading, after having fallen 12 cents to $5.13 in regular trading. CBS released its results after the markets closed.

For the quarter, operating income for CBS' TV segment fell 40% to $272.2 million. Revenue for the quarter, traditionally the year's strongest, was down 8% to $2.2 billion. In addition to the CBS network and its TV stations, the company boasts the profitable Showtime Networks, which generate cable TV subscription fees.

Radio continues to sing the blues. Operating income declined 56% to $70.5 million on 18% lower revenue of $366.7 million. Operating income for the billboard division, in part because of less-favorable foreign exchange rates, plunged 75% to $35.2 million. Revenue was down 15% to $526.3 million.

Publishing house Simon & Schuster increased its quarterly revenue 1% to $245.1 million. Operating income was off 3% to $26.1 million.

Boosted by its acquisition of Internet media company CNet Networks Inc., revenue for the interactive division nearly quadrupled to $186.3 million. However, the margins weren't as good as the company hoped when it acquired CNet last summer -- just before the retrenchment that also hit online advertising. Operating income for CBS Interactive for the quarter was $28.7 million

For the full year, CBS swung to an $11.67-billion net loss after taking write-downs in the third quarter for the diminished value of its broadcast stations and billboards. CBS generated $13.95 billion in revenue compared with $14.07 billion in 2007.


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