Acquisition Paying Off for Viacom

Profit at Viacom Inc. slipped 9% in the first quarter as the media giant was squeezed by an increased debt load as well as higher film advertising and overhead costs at its Paramount Pictures unit, the company said Thursday.

But its acquisition of DreamWorks SKG already is bearing fruit, executives said, with such films as Steven Spielberg’s “Munich” and Woody Allen’s “Match Point.” Viacom paid $1.6 billion in the quarter for the live-action studio founded by Spielberg, mogul David Geffen and Hollywood veteran Jeffrey Katzenberg.

“This is an acquisition which has re-energized Paramount and put the recovery of the studio on fast forward,” Viacom Chief Executive Tom Freston said.

Net income for New York-based Viacom, which also owns such cable networks as MTV, Comedy Central and Nickelodeon, dropped to $317.2 million, or 43 cents a share, from $350.3 million, or 47 cents, a year earlier. Revenue rose 12% to $2.37 billion, largely from adding DreamWorks.

In a conference call with analysts Thursday, Viacom executives said the DreamWorks acquisition bumped its entertainment unit’s revenue by 25% during the quarter, to $824.9 million. Operating income for the unit, however, dropped 28%, to $51.1 million.

Although the studio’s big summer release, “Mission: Impossible III,” made an underwhelming North American debut last weekend, Freston predicted a strong year for the studio.

Operating income for Viacom’s cable unit, which drives most of the company’s income, rose 8% to $621.1 million, damped by a 13% decline in international ad revenue.

The DreamWorks acquisition, combined with $982 million in stock repurchases, pushed Viacom’s debt to $7.8 billion, resulting in the higher interest expenses.

The overall results exceed analysts’ average estimate. Viacom was expected to report a profit of 40 cents on sales of $2.27 billion, according to a Thomson Financial survey.

“This was expected to be the weaker quarter of the year,” said Richard Greenfield, an analyst with Pali Research. “They faced difficult comparisons in both cable networks and the film business.”

Some analysts, however, were discouraged by the results.

“I’m slightly disappointed,” said Anthony Valencia, an analyst with TCW Group. “The cable networks business appears to be slowing.”

Viacom affirmed its full-year 2006 forecast for double-digit revenue and operating income growth, with earnings per share from continuing operations expected at $1.95 to $2.

Results for the 2005 quarter were calculated as if CBS, which was split off at the beginning of this year, had not been part of Viacom at the time.

Shares of Viacom fell 66 cents Thursday to $38.89.