Sunday, May 26, 2024

Viacom Chief Is Defensive on Its Weak Earnings


Viacom shares fell more than 21 percent after it reported a 10 percent drop in profits and a 6 percent drop in revenue in the quarter. Its chief executive blamed “a lot of noise” for the decline.

The turmoil engulfing Viacom deepened on Tuesday as weak earnings and continued concern over the company’s leadership sent shares down more than 21 percent, the lowest level in more than five years.

Still, the entertainment company’s top executive came out fighting, defending his recent promotion to the post of executive chairman.

Philippe P. Dauman, Viacom’s chief executive, challenged an analyst’s depiction of its “exceedingly poor performance” over the past several years. He attributed some of Viacom’s recent decline to “a lot of noise” around the company, and said that “no one should doubt his resolve” in resuscitating the company’s stock price.

“Our outlook and the facts have been distorted and obscured by the naysayers, self-interested critics and publicity seekers,” Mr. Dauman said in a conference call. “We will not be distracted or deterred as we build for the bright future ahead of us.”

Despite the combative rebuttal by the usually mild-mannered Mr. Dauman, Viacom’s weak quarterly results and bleak analyst forecasts undermined his arguments and turned off investors. Tuesday’s closing price of $32.86 was the lowest since July of 2010, and Viacom’s stock has fallen about 51 percent in the last year.

“For the last two years, Viacom has been the classic value trap – a stock with seemingly attractive valuation with arguably conservative earnings assumptions,” Michael Nathanson, a media analyst with MoffettNathanson, said in a research note titled “Huis Clos,” the French title of Jen-Paul Sartre’s existentialist play “No Exit.”

“However,’’ he continued, “fast forward to today and it’s clear that the stock was cheap for a reason after further significant earnings cuts. We have clearly put too much trust in the old playbook; the game has changed.”

Viacom reported earnings during a major shake-up — and a looming power struggle — at the very top of the company, which includes the MTV, Comedy Central and Nickelodeon cable television networks and the Paramount Pictures studio.

Last week, the ailing 92-year-old media mogul Sumner M. Redstone resigned as executive chairman of the company (while also yielding the executive chairman’s post at CBS). The Viacom board named Mr. Dauman his successor. Yet Mr. Redstone’s daughter, Shari Redstone, did not support Mr. Dauman’s appointment, and other shareholders have voiced concerns about Mr. Dauman’s ability to lead the company.

“I don’t think there was anything in his remarks that would give shareholders confidence that Viacom is any closer to a turnaround today than they were yesterday or a year ago,” Eric Jackson, an activist investor with SpringOwl Asset Management, said on Tuesday. “I think the stock reaction this morning reflects the same.”

During the call on Tuesday, Mr. Dauman called Mr. Redstone his “colleague, mentor and friend” and thanked him for “his vision, his guidances and his inspiration.” He said the two had more than a 30-year history building Mr. Redstone’s media empire.

“He and the board of Viacom believing in my abilities and my character have entrusted me with weighty responsibilities, none of which are inconsistent or incompatible,” Mr. Dauman said.

“They know our operational plans,” he added, referring to board members. “They endorsed them, they have confidence in them and I will repay back that confidence by producing the results without shirking our obligation to make the changes that are necessary to make Viacom the leading content company of the future.”

Mr. Redstone, who Viacom executives said listened to the call from Los Angeles, continues to hold about 80 percent of the voting stock in Viacom and CBS through his theater chain company, National Amusements. Mr. Redstone’s stake in National Amusements is to be held by a trust after he dies or is found to be incapacitated, in which case voting control passes to seven trustees, including Mr. Dauman and Ms. Redstone, setting up a potential showdown over who will lead the company into the future.

Viacom’s results for the three months that ended Dec. 31, the company’s first fiscal quarter, were dragged down by weak results across its television and film groups.

Quarterly profit was $449 million, or $1.13 a share, compared with $500 million, or $1.20 a share, during the same period the previous year.

Total revenue fell 6 percent to nearly $3.2 billion compared with the year-earlier period.

Revenue in the company’s media networks segment, which includes its TV networks, dipped 3 percent to $2.57 billion because of declines in advertising sales in the United States and internationally. Negative foreign exchange effects also affected results.

Domestic advertising sales declined 4 percent, and ratings declines at some networks offsetting price increases. The results represented a sequential improvement from the previous quarter, when domestic advertising sales declined 9 percent. During a conference call in November, Mr. Dauman said that the company expected continued improvement in domestic advertising sales in the next quarter and year.

In addition to turmoil over succession, another major issue affecting Viacom’s stock has been the company’s discussions to reach a carriage renewal with Dish Network, the satellite provider. Mr. Dauman said Tuesday that Viacom had entered into a short-term extension with Dish while it worked out the details of a long-term renewal.

The company reduced expectation for growth in affiliate revenue — the money it receives from cable, satellite and other digital distributors — to the “low mid-single-digit range” after previously stating that it would be in the high single digits. Several factors were responsible, including the company’s recent agreement with AT&T.

Also on Tuesday, Viacom announced a partnership with Snapchat, the ephemeral messaging app. As part of the deal, Viacom has the right to sell Snapchat’s owned and operated advertising space in the United States, expanding the digital offerings it peddles to television advertisers. The agreement also includes creating new channels on Snapchat’s Discovery platform for Comedy Central International and MTV in the United States.

Mr. Dauman said the Snapchat deal and other similar deals still to come should help the company revitalize its brands and “move into the future.”

Todd Juenger, an analyst with Sanford C. Bernstein, said the Snapchat partnership carried its own risks. Snapchat does not provide affiliate fees, and if teenagers watch MTV on Snapchat, there will be fewer affiliate fees and advertising sales from traditional television, he said.

“We continue to hold the view that the old business of serving kids/teens with linear TV networks is doomed, and the new business of serving kids/teens with on-demand, digitally delivered entertainment is unlikely to be won by Viacom,” Mr. Juenger said in a research note. “We don’t believe this morning’s Snapchat deal changes that.”

In Viacom’s filmed entertainment segment, revenue plunged 15 percent to $612 million in the quarter, with a decline in theatrical and home entertainment sales offset by an increase in licensing fees. Worldwide theatrical revenue declined $75 million in the quarter, largely because of a tough comparison to the previous year, when the company benefited from the “Teenage Mutant Ninja Turtles.” The results also were affected by the adverse impact of foreign exchange.

Mr. Dauman has said that Paramount’s output would increase to a 15-film slate in the current fiscal year, including Ben Stiller’s “Zoolander 2,” “Whiskey Tango Foxtrot,” starring Tina Fey, and J.J. Abrams’s “10 Cloverfield Lane.”


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Author: Red

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