Viacom Mighty Pleased With Q14/27/2003 8:00 PM Eastern
Record quarters are becoming, well, a broken record for Viacom Inc., and last week's first-quarter results were no different.
On a conference call with analysts last week, Viacom president and chief operating officer Mel Karmazin drove that point home, reminding analysts that Viacom reported record results in the second half of 2000 (right after the May 2000 merger with CBS Corp. that created the current company), again in 2001 (the year of the Sept. 11 terrorist attacks), and again in 2002.
In the first quarter (ended March 31), revenue rose 7% to $6.05 billion, and cash flow — earnings before interest, taxes, depreciation and amortization, or EBITDA — rose 12%, to $1.23 billion, fueled by strong growth at its cable and broadcast networks.
Mel: Not bored
"To some of you our record performance may be boring, but I must tell you I really like it a lot," Karmazin said. "To have revenue up 7% in a company of this size, that's a big number."
Wall Street reacted favorably to those big numbers, pushing Viacom stock up 6%, or $2.53 per share, on April 22, to $43.40 each. The climb was less steep on April 23 — only 1.7%, or 74 cents per share, to $44.14 in 4 p.m. trading.
Viacom's cable networks, including MTV: Music Television, VH1, Nickelodeon and TV Land, outperformed the company's other divisions, with revenue growth of 13%, cash flow growth of 19% and operating income growth of 21%.
"We like our mix of assets," Karmazin said on the conference call. "The company is in an extraordinary position to take advantage of a strong advertising market."
The ad market was especially strong in cable — basic-net ad sales were up 17 percent in the period, with MTV Networks up 18 percent and Black Entertainment Television up 13 percent.
VH1 coming up
"That sector [cable networks] is unbelievably strong, and its strong without the benefit of VH1," Karmazin said. "VH1 will significantly contribute toward our network position in the second quarter."
Despite early fears that the Iraq war would have a major effect on television advertising, the impact has been minimal.
"On the Wednesday night when the president asked for air time at 10:15 to speak to the nation, for the next few days everything stopped," Karmazin said. "Now, fast-forwarding it about 30 days, everything is principally back to normal."
Karmazin said that one major airline canceled its advertising as a result of the war and one major hotel chain canceled about $8 million in advertising because they believed that travel was down, and would redeploy that money at a later date.
"Because I can remember those two accounts, that's how few there are that have canceled as opposed to adjusted," Karmazin said. "I think our cable networks lost maybe $2 million as a result of the war, and I'm not sure that we didn't get that $2 million back."
Karmazin said that the television ad market continues to be tight for broadcast networks and cable, and urged advertising agencies to buy early and often. He warned that agencies that don't participate in the broadcast network upfront could be surprised to pay much more in the scatter market.
First-quarter scatter pricing was 30% to 40% higher than the upfront, he noted.
"The market is very hot," Karmazin said on the conference call. "We'll accommodate you as best we can. But you'd better buy often and buy fast, and get your order in now."
While most of Viacom's operating divisions showed strong growth, its Infinity radio unit was a disappointment.
Revenue at the radio unit was down 2% and cash flow was flat for the quarter.
Karmazin said bolstering the radio division would be his primary focus in the next few weeks.
"There is nothing fundamentally wrong with radio, it is a fabulous business," Karmazin said. "If the advertising business is as strong as it is today, there is no reason, other than reasons related to our sales organization, as to why our revenues are not higher."
He added that changes will have to be made to turn the unit around — he said he was meeting with Infinity's New York ad group right after the conference call — but he would not be specific.
"What will change? Whatever has to change in order for us to get on track," Karmazin said.
|Viacom's Happy Quarter|
|Source: Company reports. In millions, except percentages.
|Free Cash Flow||591.5||380.2||55.6%|