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4-Traders Homepage  >  Equities  >  Nasdaq  >  DIRECTV    DTV

DIRECTV (DTV)

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Viacom Reports Profit but Revenue Slips -- Update

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04/28/2016 | 06:43pm CEST
By Keach Hagey and Lisa Beilfuss 

Viacom Inc. swung to a profit in its latest quarter but revenue fell short of expectations as the media giant continues to grapple with shifts in how people consume media.

At the media networks, the company's largest division, both advertising and affiliate revenues declined in the U.S. in the quarter -- 5% and 2%, respectively. Those declines pulled down operating income below analysts' expectations for the segment, which includes cable channels like Nickelodeon, MTV and Comedy Central.

The sharp drop in ad revenue was sequentially worse than the previous quarter, even amid a strengthening advertising marketplace and ratings improvements at channels like Nickelodeon. The company attributed the surprisingly steep decline to continued ratings weaknesses at major channels like MTV and Comedy Central, combined with lighter ad loads on some channels.

"While it is early in the quarter, we hope to improve the rate of change in ad sales revenue even as we reduced unit load at several of our networks, which bodes well for brand health and future financial performance," said Viacom Chief Executive Philippe Dauman on a call Thursday with analysts.

Viacom shares have fallen nearly 40% over the past year, reflecting weak ratings and concerns over the rise of cord-cutting. The stock got a boost recently after Viacom and Dish Network Corp. renewed their carriage agreement and avoided service interruptions, pushing the stock into positive territory on the year.

Viacom's stock recently was down 2.4% to $42.75.

The company continued to tout its data-driven advertising products such as Viacom Vantage, saying they would help drive up pricing during the annual "upfront" ad sales season, when advertisers make spending commitments ahead of the next TV season. But Viacom also continued to decline to share the revenue impact of such measures, saying only that the number of Vantage advertising clients was expected to triple this year. Tom Dooley, Viacom's chief operating officer, said that it was impossible to break out the performance of the new products, since they are sold as part of larger deals with major advertising clients.

Domestic affiliate revenues dropped in the quarter due to what the company described as a "modest decline in subscribers" combined with a previously disclosed step-down in rates as a result of the merger of DirecTV and AT&T. However, with the closing of its closely watched deal with Dish Network, the company said now it has all the major distributor deals locked up.

"Based on the long-term deals we recently closed, we expect to grow affiliate revenues with traditional distributors, and overall, at mid-single-digit rates in 2017 when the rate realignment will be behind us and beyond," Mr. Dauman said.

Mr. Dooley reiterated Viacom's previous guidance of expecting to grow affiliate revenues in the low-to-mid-single-digit percentage range in fiscal 2016.

One interesting detail did emerge from Viacom's discussion of the recently signed Dish deal: Mr. Dauman said its flagship channel, Nickelodeon, won't be part of Sling TV, the low-cost streaming service developed by Dish. At the time the deal was announced on April 21, Nickelodeon was conspicuously absent in a list of Viacom channels destined for Sling including Comedy Central, MTV and BET.

Part of Mr. Dauman's turnaround plan for Viacom includes selling off a minority stake of Paramount Pictures, a gem of controlling shareholder Sumner Redstone's media empire that has fallen on hard times in recent years. On the call, Mr. Dauman reiterated the strategic benefits of finding a partner for Paramount "that provides international or technological expertise." The cash from the stake sale would be put toward reducing Viacom's leverage so that its stock remains investment grade, he said. The company's leverage ratio is currently at 3.3, while its target is 2.75.

But amid the sale process, the latest quarter's results offered a glimpse at the century-old studio's continuing struggles at the box office. Paramount posted a loss for the quarter of $136 million, dragged down by the weak performances of "Zoolander 2" and "Whiskey Tango Foxtrot." Mr. Dooley said that, given the weakness in the first half of the year, Paramount was expected to generate a loss in fiscal 2016, which ends in September.

Nevertheless, Mr. Dauman said Paramount has drawn interest from "over 40" companies, and is now in "the final stages of whittling that down to a handful of strong players." It will receive management presentations from these potential bidders in mid-May, and then negotiate a deal by the end of June.

News of Comcast's deal to buy DreamWorks Animation for $3.8 billion broke during Viacom's call with analysts on Thursday. Mr. Dauman said such a deal "shows the value" of Paramount, since DreamWorks Animation "puts out two movies a year" and Paramount has a vast library and plans to build its film slate back up to 15 films a year.

Over all, the company reported a profit of $303 million, or 76 cents a share, up from a loss of $53 million, or 13 cents, a year earlier. Excluding restructuring costs, among other items, earnings per share fell to 76 cents from $1.16.

Revenue slipped 2.5% to $3.0 billion. Analysts projected 74 cents in adjusted earnings per share and $3.21 billion in revenue, according to Thomson Reuters.

Write to Keach Hagey at keach.hagey@wsj.com and Lisa Beilfuss at lisa.beilfuss@wsj.com

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