CBS Profits Drop 22% in 2nd Quarter : Musical Instruments, Toy Units Blamed; TV Segment Up 14%

CBS said Tuesday that its profits fell 22% in the second quarter ended June 30, compared to the same period a year ago.

The company blamed the drop--to $69.3 million from $88.6 million--mostly on one-time items generated by two units whose long-term problems have been no secret: its toy and musical instruments divisions.

But it reported a particularly strong quarter for its most important core business, the CBS broadcast group, which registered a 14% increase in earnings--to $181.1 million from $159.4 million--on a 10% rise in revenue--to $737.2 million from $672.5 million. The group, which includes the CBS television network and the company’s five TV stations, accounts for more than half of the company’s annual revenue.

CBS had released the rough outline of its second-quarter results last week when it began a $954.8-million tender offer for 21% of its shares. The prospectus for the offer forecast a decline of 20% to 25% in second-quarter earnings.

“This is pretty much as telegraphed,” said John Reidy, media analyst for Drexel Burnham Lambert in New York.

Turner Weighing Options

The repurchase program, designed in part to foil a takeover bid by Atlanta cable-television entrepreneur Ted Turner, was apparently well aimed. Turner said Tuesday in Washington that the program “would make it very difficult for our offer . . . to have any chance whatsoever.”

He said, however, that he was considering “a number of possible options” to keep his bid alive. (See related story in Calendar.)

CBS shares have been trading at a price largely dictated by takeover speculation. They closed Tuesday at $116, up 50 cents, on volume of 804,000 shares in New York Stock Exchange trading.

In the absence of a credible takeover bid and upon the expiration of the company’s tender offer, now set for July 31, many analysts expect the stock to settle at a price of about $100.

In its second-quarter report, CBS showed a loss of $31.7 million under the category of “other,” a reporting line that mostly comprises its ailing toy unit, compared to a loss of $8.7 million in the second quarter of 1984. The loss includes a provision that analysts estimated at nearly $20 million in anticipation of a loss on the sale of an antiquated toy factory in Newark, N.J.

CBS’ toy unit has lost nearly $52.3 million so far this year on sales of about $79.9 million, a level of red ink that probably strengthens the unit’s stature as the one most likely to be divested when CBS begins selling assets later this year to finance its stock repurchase.

The network also added $8.8 million in the second quarter to its provision for losses from the sale of its Fullerton-based Fender guitars unit. A $29-million loss was booked in the fourth quarter of 1984.

Fender was sold in March to a management group. The rest of CBS’ musical instruments division, which includes Steinway & Sons, the piano makers, is also for sale.

Securities analysts said Tuesday that the only real surprise in the second-quarter earnings report was a better-than-expected performance at CBS Records, which some analysts had expected to show a 50% drop in earnings from the second quarter last year.

Early shipment of an album of “greatest hits” by pop star Billy Joel helped the quarterly results, which fell by 38% to $18.8 million from the year-earlier $30.5 million. The records division is suffering from the absence of any major sales successes; a year ago the division was still booking sales of Michael Jackson’s record-breaking “Thriller” album, which have now subsided, as well as of hits by Cyndi Lauper and Bruce Springsteen.

“It looks like an off year for their major artists,” said Edward Atorino, a media analyst for Smith Barney, Harris Upham & Co. in New York. The records division’s revenue declined 8% to $281.7 million from $305.3 million a year earlier.

Its third major business group, CBS Publishing, reported a 63% decline in profits on a revenue increase of 16%. CBS attributed the fall to a write-off of costs associated with its Feb. 4 acquisition of the consumer magazines owned by Ziff-Davis Publishing. Such write-offs will decline sharply after this year. CBS Publishing reported income of $2.3 million, down from $6.3 million in the second quarter of 1984, on revenue of $163.9 million, up from $141.8 million a year earlier.