CBS Preview: Balance Sheet in Focus

CBS (CBS - commentary - Cramer's Take) is expected to report first-quarter EPS of 8 cents on revenue of $3.27 billion. Estimates have been falling, and at least one analyst is looking for breakeven EPS. Revenue will drop about 10%, but the fixed-cost nature of running radio and TV stations and billboards means that operating leverage is high. Right now, that is a nasty thing, and operating income will fall 50% or more.

CBS is one of the last advertising-based media companies to report earnings. Most reports have been in line to better than expected, driven by good margin control and, in the case of some companies, decent advertising performance on cable networks.

CBS has limited exposure to cable networks and huge exposure to the very troubled local advertising market. Local TV, radio and outdoor could all see revenue declines of 20% or more. I respect CBS management, but there is little that can be done to mitigate the negative leverage when faced with this type of revenue shortfall.

One bright spot at CBS has been the performance of the CBS TV network. Ratings have been firm, and this should help limit advertising declines at the network to single digits. Profits at the network would be the one place we could see a positive surprise.

CBS's balance sheet is sure to be a focus of the call. The company faces multibillion-dollar refinancing requirements for the next several years. Free cash flow performance is strong, but restructuring the amortization schedule is required. Insights into the CFO's thinking are likely to have as big an impact on the stock price as comments on second-quarter advertising trends. The hope is for a specific plan to address upcoming maturities and for signals that ad trends are less negative in the second quarter.

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Know what you own: Other TV broadcasting stocks include Rogers Communications (RCI - commentary - Cramer's Take), Grupo Televisa (TV - commentary - Cramer's Take), CTC Media (CTCM - commentary - Cramer's Take), Central European Media Enterprises (CETV - commentary - Cramer's Take), Hearst-Argyle Television (HTV - commentary - Cramer's Take) and Belo (BLC - commentary - Cramer's Take).

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At time of publication, Birenberg had no positions in the stocks mentioned, although holdings can change at any time.

Steven Birenberg is president and chief investment officer of Northlake Capital Management, LLC. Northlake specializes in managing equity portfolios using a combination of exchange-traded funds and special situation stocks. Birenberg appreciates your feedback; click here to send him an email.