Viacom Inc., the world's fourth-largest media company, said it turned a profit in the second quarter on higher advertising revenue at its cable television networks such as MTV, after a year-earlier loss.
New York-based Viacom also said it plans to raise about $527 million by selling a 17.7% stake in Blockbuster, the world's largest chain of video stores, to the public. The sale is expected the week of Aug. 9. Viacom plans to eventually spin off the rest to shareholders. Proceeds will be used to pay down debt.
Viacom reported net income of $59.3 million, or 8 cents a share, beating by 3 cents the average estimate of analysts surveyed by First Call Corp. In the year-ago quarter, it had a loss from continuing operations, excluding a $424-million charge for its Blockbuster Entertainment unit, of $9 million, or 1 cent a share.
Higher viewer ratings at MTV, VH1 and Nickelodeon resulted in stronger advertising and licensing sales. The Blockbuster chain increased its market share and sales. And Viacom's Paramount Pictures studio overcame tough comparisons with a year ago because of stronger home video results from releases such as "The Rugrats Movie."
"The networks continue to be the real growth driver for the company," said Scott Davis, an analyst at Schroder & Co in New York.
Cash flow rose 23%, to $482.3 million from $390.8 million, excluding the charge for Blockbuster a year ago. Cash flow--or profit before interest, taxes, depreciation and amortization--is a key measure used by analysts to gauge the performance of indebted companies because it focuses on the underlying businesses and excludes interest payments.
Revenue rose 8%, to $3 billion from $2.78 billion.
Viacom Class B shares fell 69 cents to close at $44.19 on the New York Stock Exchange.
"It will be clear that the growth we have ahead of us far exceeds the vibrant growth we've experienced so far," Chairman Sumner Redstone told analysts in a conference call.
The networks division generated cash flow of $219.3 million, up 25%. Double-digit ratings growth at MTV and VH1 and the success of licensing programs helped lead to a 21% increase in worldwide ad sales. MTV's second-quarter household ratings jumped 20%. Network revenue rose 18% to $704.4 million.
"Profit contributions from the international networks appears to be accelerating," said Ed Hatch, an analyst at SG Cowen & Co., who rates Viacom stock a "strong buy" and forecasts that it will rise to $56 within 18 months.
Blockbuster's cash flow rose 61% to $104.5 million, excluding the effect of a year-ago charge for an accounting change at the video chain. Revenue rose 17% to $1.04 billion, driven by higher demand for videos and an increase in the number of company-owned stores. Domestic rental revenue at stores open at least a year rose 13%.
Blockbuster's domestic market share rose to 31% from 26% in the fourth quarter, Redstone said. He also said he expects the chain to achieve its goal of controlling a 40% to 50% market share sooner than previously predicted.
"I'm extremely pleased with the Blockbuster results. There's no question in my mind that they're right on track," said Marvin Roffman of Roffman Miller Associates, a Philadelphia-based money management firm that owns Viacom shares.