Big media's profits defy gloomy outlook, for now
Big media companies reported strong results but a bleak economic outlook has investors worried over whether they can deliver again in the face of high unemployment and slumping U.S. consumer spending.
Comcast Corp, Time Warner Inc and CBS Corp beat Wall Street forecasts because of a mix of content licensing deals, movie box office receipts and advertising growth.
Now, the chief concern among investors is whether earnings over the remainder of the year will hold up. And that largely depends on insurance companies, retailers, restaurants and phone companies continuing to spend on big advertising campaigns.
We don't see any signs of a deceleration right now, said Steve Burke, chief executive of Comcast-controlled NBC Universal. We are obviously concerned about the economy the way you would expect us to be; but so far the advertising market continues to be strong.
Shares of Time Warner, parent of CNN, HBO and Warner Bros, closed 1.3 percent lower at $33.57 on Wednesday, with investors seemingly indifferent to the marginal increase in its forecast for the year.
Comcast shares ended little changed, while CBS, which issued results late on Tuesday, rose 1.6 percent. Viacom Inc, Walt Disney Co and News Corp have yet to report results.
NBC Universal saw advertising sales at its cable networks rise by 10 percent, while ad sales at its NBC broadcast network rose by 7 percent.
Advertising got so badly hit in 2008 and 2009 during the recession that advertising still has room to return to a normalized level to GDP, said Evercore Partners analyst Alan Gould. Ad sales should do OK through the end of the year, driven by autos, especially as Japanese auto makers come back. (For a graphic showing the market caps of major U.S. media companies, click here: http://r.reuters.com/zef92s )
U.S. consumer spending habits are a concern after last week's tepid increase in U.S. second-quarter output and rise in the unemployment rate to 9.2 percent in June.
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Time Warner's ad sales rose 9 percent at its cable networks, but rose only 2 percent at its magazine unit. CBS's ad sales rose 3 percent across TV, radio and outdoors.
Given the weak economy, it raises concerns for ... the future of the advertising market. For now, ad markets remain healthy with a note of caution, said Chris Marangi, portfolio manager at Gabelli Multimedia Funds, which owns media stocks including Comcast and Time Warner.
Most media companies are in a better place to weather an ad decline than they were in 2008, he said.
Comcast also must contend with customers canceling cable service because of lost jobs or lost homes, or because they went with cheaper Web video services like Netflix Inc.
Comcast lost 238,000 basic video customers in the quarter, but added 144,000 Internet and 193,000 phone subscribers. Its chief cable rival, Time Warner Cable lost 128,000 video customers during the quarter.
Comcast's customer numbers were pretty good, though basic video losses remains a concern for investors, said Collins Stewart analyst Thomas Eagan. We're close to the broader pay-TV market being flat to down this quarter due to seasonality and the economy.
The company cable customer additions fell in May, but recovered in June, said Comcast Cable President Neil Smit. That recovery continued into July, he said.
Comcast reported second-quarter profit of 42 cents a share, ahead of the average analyst forecast of 41 cents, according to Thomson Reuters I/B/E/S. Revenue rose 9.4 percent to $14.33 billion.
At Time Warner, adjusted earnings per share were 60 cents, ahead of the average analyst forecast of 56 cents. Revenue rose 10 percent to $7.03 billion.
(Reporting by Yinka Adegoke; editing by Paul Thomasch, Robert MacMillan and Matthew Lewis)
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