The slump in advertising demand continued to eat into CBS Corp.’s (CBS) profit for the second consecutive quarter in fiscal year 2009. Adjusted profit for the latest quarter plummeted significantly by 83% year over year to $57.4 million resulting in lower EPS.
EPS excluding one-time items, which came in at $0.08, was in line with the Zacks Consensus Estimate but fell sharply by 84% compared to $0.49 in the prior-year quarter. On a reported basis, EPS fell 97% to $0.02.
The sluggish advertising market continues to hurt total revenue, which declined 11% to $3,006.3 million. However, CBS saw 3% improvement in quarterly revenue compared with a 14% drop in the first quarter of 2009.
The uptrend seen in revenue has made management optimistic as they have forecasted for better results in the third and fourth quarter compared to the earlier quarters in 2009, and indicated some signs of revival in advertising demand in core categories like retail, telecom, pharmaceuticals and quick service restaurants.
Operating income before depreciation and amortization (OIBDA) for the quarter declined 49% to $387.4 million, despite cost cutting initiatives taken by management, which expects full-year OIBDA in the range of $1.7 billion to $1.9 billion.
Revenue declines were experienced across the board, except Interactive segment, where sales increased significantly by 214% to $126.4 million due to acquisition of CNET Networks (a global interactive media company) last year.
Television and Radio divisions’ revenue fell 10% and 23% to $1,947.5 million and $322 million, respectively, due to the slump in advertising demand. Revenue in the Outdoor segment revenue also dropped 27% to $434.1 million for sluggishness in advertising and a stronger US dollar. In constant dollars, Outdoor sales slipped 21%. Publishing revenue fell 2% to $181.4 million due to the negative impact of exchange-rate fluctuation.
CBS repurchased $1,240 million of senior notes due in October 2010, funding them with longer-term notes and removed the liquidity overhang. The new notes carry a higher coupon rate but lengthen the company’s debt maturity. The first offering of $400 million will carry a rate of 8.20% and mature in 2014, while the second offering of $600 million will have a stated coupon rate of 8.875% and mature in 2019. CBS has retired $825 million of those notes and has only $415 million outstanding.
During the quarter, the company generated free cash flow of $351.7 million (down 24%). It had cash and cash equivalents of $341.5 million at the end of the quarter with total long-term debt of $6,986.8 million, representing a debt-to-capitalization ratio of 45%. We keep our Neutral recommendation on the stock.
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