PolyGram Rebounds After Weak First Half

PolyGram is going out with a bang.

Operating profit at the global music giant soared 38% in the third quarter--the final period for which PolyGram will report results before it is to be swallowed by entertainment and liquor giant Seagram Co. in late November. That acquisition will form the largest record company in the world.

PolyGram’s rebound follows a very weak first half and can be attributed primarily to sales in the United States by such acts as rapper DMX and country singer Shania Twain as well as advance shipments of albums by pop star Sheryl Crow and rapper Jay-Z, which didn’t arrive in retail stores until this month. PolyGram’s labels are Island, A&M;, Motown and Mercury.

For the three months ended Sept. 30, PolyGram reported operating profit, or cash flow, of $123 million, compared with $89 million during the same period last year. While net sales remained flat at about $1.3 billion, net income rose 88%, to $81 million from $43 million last year, PolyGram reported.

The company said Wednesday that the surprising rise in music operating income was caused by the delayed arrival of a spate of strong U.S. releases, lower marketing costs and continued benefits of a restructuring program started in 1997. Although revenue rose slightly in Europe for PolyGram, sales dropped about 5% in most territories around the world--plunging as much as 23% in Asia.

PolyGram shares jumped 6.6% after the company posted its third-quarter gains. The results come as welcome news for Seagram Chief Executive Edgar Bronfman Jr., who has been criticized for overpaying for PolyGram at the peak of the market in May. PolyGram’s profit and entertainment stock prices have fallen significantly since Seagram offered $10.4 billion for PolyGram.

“For a while there, people were just shaking their heads, saying, ‘What exactly is this guy buying?’ ” one New York entertainment analyst said. “But PolyGram’s third-quarter results blew way past anybody’s expectations. It speaks to the ability of this company to find and deliver hits.”

Over the last few months, executives from Universal and PolyGram have been working around the clock with a team of consultants trying to develop a plan to slash overhead costs by $300 million annually and to position the combined companies for double-digit growth in the global market. Universal has already convinced most of PolyGram’s key international record executives to stay on.

Groups of executives at both companies have been analyzing ways to cut waste around the world in a multitude of areas.

It is unclear how many jobs will be lost at PolyGram, which employs 12,000 people worldwide, or at Universal Music Group, which has about 3,500 employees. But no significant changes are expected to be enacted or announced until early next year.