Viacom's View Is All Roses

Operating income rose 7% to $1.38 billion, and free cash flow surged to $708 million from $214 million a year ago, reflecting higher operating income as well as working capital improvements including lower investments in merchandise inventory at Blockbuster (BBI Quote - Cramer on BBI - Stock Picks).

Viacom said a strong contributor to third-quarter revenue was the advertising segment, where revenue rose 8% to $2.88 billion. "We delivered top line growth in nearly every business area and brought in significant operating income gains, all despite slower-than-expected growth in local advertising that did not keep pace with gains in the national ad market," CEO Sumner Redstone said in a statement.

For coming periods, Viacom reaffirmed its expectation to deliver mid- to high-single digit percentage growth in revenue and operating income for full year 2003, with low- to mid-teen growth in earnings per share. For the full year 2004, Viacom said it expects to deliver revenue growth of 5% to 7%, resulting in operating income growth of 12% to 14% and earnings-per-share growth of 13% to 15%.

Analysts expect Viacom to earn 39 cents a share on revenue of $7.3 billion next quarter, and make $1.65 a share on revenue of $28.4 billion next year.

Upbeat

In typically upbeat fashion, Karmazin spent much of the call pointing out reassuring omens for the coming year. The rate of cancellations for first quarter 2004 TV advertising is low, he said. The CBS network has already sold out over two-thirds of its advertising inventory for the 2004, "at prices we are very, very happy with." Karmazin said he wouldn't be surprised if TV station revenue growth next year were in the double digits.

One possible driver of growth for TV advertising, Karmazin suggested, is next month's scheduled implementation of wireless telephone portability, which will enable cellphone users to switch carriers while retaining their telephone numbers. From the telecom industry, "an awful lot of people are coming in" to discuss possible advertising, said Karmazin.

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