Ad sag hits media stox
Viacom's weak-ad warning hits shares
Message, though largely confined to weaker-than-expected radio and outdoor as well as local TV ad sales, dragged down most of the big board's broadcast stocks during Wednesday trading.
Along with Viacom, Fox Entertainment (off 1.8%), Univision (down 6.5%), Clear Channel (down 3.87%), Disney (-1.9%), Emmis, Sinclair and Westwood One all went south as investors fretted over premature expectations about a robust ad recovery.
Viacom shares have been pummeled in recent days, dropping more than 8% to their lowest level in six months.
Viacom admitted that its third-quarter earnings-growth projections may have been a tad optimistic. In a statement, company cut its sales and profit-growth outlook for 2003, noting a slower-than-anticipated recovery in local advertising.
Downgrade largely stems from weakness in radio and its outdoor business, but that didn't stop the panicky sell-off of companies with any exposure to TV advertising as well.
Viacom promises record year for sales
Viacom reduced its 2003 earnings-growth expectations from midteen percentage growth to "low-to-mid teens." It sees mid-to-high single-digit growth in revenue and operating income for the full year, compared with its previous prediction of high single-digit growth for revenue and double-digit operating income growth. Still, it promises a record year for sales as well as strong growth in 2004 due in part to the Super Bowl on CBS, a presumably improving economy and political ad spending.
Election ads alone could chip in an extra $300 million to Viacom coffers next year, one media buyer said.
"While the economic recovery has translated into robust national advertising sales growth, the pace of recovery in local advertising markets going into the fourth quarter is not as rapid as had been anticipated," Viacom said in a statement.
Most bullish broadcast pundits, chief among them chief operating officer Mel Karmazin, have been touting a buoyant ad recovery. But despite the robust national TV ad market, TV stations and radio outlets are still struggling to enjoy the trickle down.
Disney, Fox vulnerable
Bear Stearns analyst Ray Katz noted last week that while the 2003-04 network upfront was much stronger than expected, with up to $9.5 billion in orders, there was some evidence the conversion of upfront commitments was "proceeding at a slightly slower pace than normal."
Katz warned that if national TV advertising weakens at all while the local market remains soft, Disney, Fox and Viacom could all take a pounding.
Still, some skeptics believe the downward revision may actually reflect cost pressures such as higher programming expenses in radio or investment elsewhere in Viacom. If so, notes JPMorgan analyst Spencer Wang, the company may face cash-flow pressures even if the local ad economy improves.
Many Wall Street seer, however, urged investors to exploit the "over-reaction" to the weakness.
"We think this will be the trough quarter for the year," noted Smith Barney analyst Jill Krutick, who maintains that the fourth quarter should benefit from the strong upfront in the broadcasting biz and solid momentum in cable networks and Blockbuster.
Krutick is confident of a 2004 rebound for Viacom's ad-dependent broadcast businesses, citing strong momentum at CBS and "an eventual pickup in radio and television stations."
