Excluding charges, CBS broke even on a per-share basis in the period, compared to a 3-cent loss in the same quarter a year ago. Analysts surveyed by First Call were looking for a loss of 1 cent.The stock (CBS) rose 2 1/16 to 27 7/16 in trading Thursday morning.
Revenue rose to $1.6 billion from $1.3 billion in the year-ago period.
The earnings results came the day after CBS announced that Chairman and CEO Michael Jordan will resign at the end of this year and current President Mel Karmazin, who also serves as the network's chief operating officer, will move up to CEO.
In a statement, Jordan said this is an "appropriate time to move on to other challenges," and said there's "no better person to carry CBS forward than Mel Karmazin."
"Mel is the largest single shareholder in CBS and he's obviously exercising his right to run the company," said Bill Gloede, editor of MediaWeek magazine. "He's no William Paley. But I guess no one is nowadays."
Bishop Cheen, media analyst with First Union Capital Markets, said the change at CBS was expected but it happened a bit sooner than everyone thought.
"Everyone clearly believed that Mel Karmazin was the heir apparent," he said. "I'm not sure what precipitated the acceleration of Jordan's departure, but maybe we'll find out tomorrow in CBS's conference call."
Cheen said Jordan is a "visionary" who transformed CBS's former parent Westinghouse into a pure play media company.
Karmazin, who built Infinity Broadcasting into a powerhouse radio group before selling it to CBS in 1996, is known as a hard-driving, tough-as-nails operator. After assuming control of the newly consolidated CBS Radio two years ago, he drove advertising sales higher by putting the ad people on totally commission-based salaries. He then brought the same plan to the CBS-owned television stations last year, a move analysts credit with turning those staions around.
Gloede, the MediaWeek editor, said Wall Street likes Karmazin but that the CBS chief seems to be "in it basically for the money."
The Karmazin sales plan is now being implemented at the long-suffering network, along with job cuts and other cost controls designed to convince shareholders that the company is doing everything it can to bring the network to profitability by 1999.
The problem at CBS hasn't been bad programming, Karmazin said last month, but "the expenses hadn't been under control."
Wall Street sees robust cash flow growth. Influential Merrill Lynch analyst Jessica Reif Cohen predicts that cash flow (earnings before interest, taxes, depreciation and amortization) will climb 49 percent to $312 million from $209 million a year earlier, boosted by the acquisitions of American Radio Systems and Gaylord Entertainment cable networks The Nashville Network and Country Music Television.
While the radio group and the television stations continue to be solid performers, weakness at the network will continue to be a drag on the company's bottom line, analysts said.
When he spoke to investors and reporters at last month's Nationsbanc Montgomery Securities Investment Conference, Karmazin didn't even address the September quarter, focusing instead on what he sees as a strong December period.
"I think the network is under some pressure," said Credit Lyonnais analyst Richard Read, referring to the third quarter, "primarily because you're beginning to have the NFL contract in there." CBS paid about $4.4 billion to air NFL games for the next few years.
"The network is probably going to lose probably $120 million in EBITDA (cash flow) this year," Read said.
All of the broadcast networks have seen viewership declines this season, as more viewers turn to cable, the Internet and other diversions. Combined with the effects of the GM strike, it's a scenario that adds up to decreased advertising sales when compared to the year-ago period.
As other networks have, CBS announced a series of job cuts, most notably in the hallowed news division.
Still, while broadcast ratings have fallen in general, Merrill Lynch's Cohen said in a recent research note that ratings are getting better at the CBS network, particularly among its primary demographic target - adults 25-54.
Among new shows, the network has had success with Martial Law and King of Queens, while continuing stalwarts like Touched By An Angel, 60 Minutes, Walker, Texas Ranger and JAG have also posted solid numbers.
In the current quarter, Cohen said the company has been able to charge about 15-20 percent more for advertising than it did during the late August-early September "upfront," or advance sales push. Much of this has to do with Karmazin's manueverings, she said.
Read agrees that such hard-nosed tactics are working, but primarily at the TV stations, where hey've been in place for more than a year. "The television stations will be up pretty strongly because they're really in the kind of late, middle period of a turnaround under Karmazin," he said.
And as much as it might be draining the network, football is having an opposite effect on the company's 14 television stations, Read said, helping to spur ad sales higher.
In his September speech, Karmazin said both Hollywood Squares and The Howard Stern Radio Show, which debuted in late August, have generated "significantly more revenue" for CBS-owned stations in the time slots they now occupy, compared to the same time period a year ago.
Stern is also being syndicated around the country, and a number of stations have decided to drop the show because of its raunchy content. CBS has no comment on the situation, but industry observers wonder how many more stations will be allowed to bow out before some kind of move is made.
There's no question that radio is the company's big gun. Read and Cohen anticipate huge cash flow growth for the radio group in the third quarter compared to the year-earlier period, because it includes results from American Radio Systems. CBS closed its $1.6 billion buy of American Radio this summer.
To help emphasize the value of the radio unit, the company is about to offer 20 percent of it to the public as Infinity Broadcasting, the name of the legendary group Karmazin sold to CBS in 1996. The offering also figures to significantly reduce CBS's debt, which currently stands at about $5 billion. CS First Boston's Harry DeMott estimates that a successful IPO can cut the company's debt by as much as $3 billion.
Analysts think the offering will be well-received, even as it seemingly subtracts from the value of the original stock. Said Read of CBS shares: "The nice thing is, you don't have to value the network as much to justify a $28, $29 stock price."
CBS is a 50-percent owner of CBS.MarketWatch.com.
By David B. Wilkerson and Steve Gelsi