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CBS Opens Its Wallet

The broadcaster sets new plans for its cash hoard, and also posts strong earnings.


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delivered strong fourth-quarter results Tuesday despite a difficult climate for broadcast media. The company also threw a bone to investors who have been eyeing its cash pile.

The broadcaster, which split off from


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last year, posted a 14% jump in operating earnings for the quarter. The company saw strength across all its business segments except radio, which has suffered since the defection of shock jock Howard Stern to


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CBS benefited from a strong season for political advertising and from licensing of its syndicated TV shows, but investors were focused on its efforts to return cash to shareholders through another dividend hike and a new share-repurchase plan.

The company announced its fourth dividend increase in 14 months, this time raising its annual payout by 10% to 88 cents a share, which amounts to a cash yield for the stock of about 3%. Also, it unveiled a $1.5 billion share repurchase plan, which will lower its shares outstanding by roughly 6%.

"We have demonstrated once again how important our shareholders are to us," said the company's CEO, Les Moonves, on a conference call with analysts following the earnings release.

CBS' $3.1 billion cash pile had become a point of contention for shareholders who have been adamant that the company should be returning more cash to them in light of the company's slow-growth profile. Since the broadcaster split off from Viacom in 2006, its shares have increased more than 20% on expectations that more cash payouts would be forthcoming.

The market's reaction to Tuesday's news from CBS was drowned out by a broader correction in stocks, as the company's shares were recently down 6 cents, or 0.2%, to $31.34.

Stanford Financial Group analyst Frederick Moran says shareholders should applaud the announcement.

"CBS is showing that it has substantial free cash generation that it will return to shareholders, and people should feel more comfortable about their long-term exposure to CBS," says Moran.

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"Clearly, it has the cash to do even more than what they've announced and investors might be wondering why they didn't do a more meaningful dividend increase or even just a one-time dividend to get that cash back to shareholders, but they have shown that they want to consistently reward shareholders with dividend increases that are ongoing as opposed to one-time in nature and complement that with a meaningful share repurchase program," he adds.

Moran points out that CBS has a large debt load on its balance sheet that outweighs its cash reserves, and he says the company is drawing a balance between rewarding shareholders and covering its obligations.

"They're selling non-strategic assets, bringing in cash and keeping some powder dry for whatever undertaking they will consider, which will probably be more about rewarding shareholders than about acquisitions," he says.

CBS posted fourth-quarter net income of $335 million, or 43 cents a share, compared with a loss of $9.1 billion, or $12 a share, in the same period a year earlier, when results included a $9.5 billion charge on its TV and radio assets.

The company said its adjusted EPS rose 43% to 63 cents, trouncing Wall Street's expectation for earnings of 47 cents a share, according to Thomson First Call.

CBS' revenue for the period rose 2.5% to $3.9 billion, beating expectations for revenue of $3.8 billion.

After declining in the first three quarters of 2006, TV ad revenue rose slightly in the fourth quarter due to a flurry of political advertising around the midterm congressional elections.

Moonves said on the call that strength in political ads could continue in 2007, given that the 2008 presidential elections have gotten off to an early start.

"The fireworks that are out there now bode well for us," said Moonves. "

The candidates are raising a lot of money."

Revenue from its pipeline of syndicated shows, such as

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, also boosted its TV division.

Revenue from the radio business declined 8%.

The company's outdoor-advertising business, consisting of billboards and advertising posters on public transit, had a 10% increase in revenue.

Moran says an industrywide push in outdoor advertising to upgrade to digital billboards, which requires extra capital investment, could weigh on cash flows at CBS in 2007, but overall, he is positive on the company's prospects.

"The outlook looks fairly bright for sustained cash flow growth at CBS," he says. "Clearly, CBS has gotten good value recognition as a stand-alone company. It remains one of the safer, lower-risk plays in the broadcast sector, and it remains a comfortable stock for investors who want reasonable cash yield through dividends and free cash flow performance."