CBS Revenues Drop Steeply

In the midst of a secular decline in print and broadcast media, which led to the levering of balance sheets to fund massive stock buybacks, the deepening recession has eviscerated ad revenue, industrywide. CBS Corp. (CBS) has reacted by cutting costs and eliminating more than one-third of its poorest-performing mid-market radio stations to focus on large markets.

Its latest move to conserve cash (about $600 million annually) was an 81% dividend cut announced with 4Q08 earnings.  The cut was imperitive as levered free cash flow falls at an accelerating rate and the company faces a $1.6 billion debt maturity in 2010 ? debt is now 45% of CBS’ total capital.

Longer term, the company is looking to offset the secular radio slowdown by creating and acquiring higher-growth, higher-margin businesses in three key areas: Interactive, Content and Outdoor.

CBS’s 4Q08 financial results, reported yesterday after the market closed, showed ad revenue falling at an accelerating rate as the recession deepens globally. Adjusted EPS from continuing operations (which excludes one-time charges) fell 45% year over year to $0.32 from $0.58 per share reported in 4Q07.

Total revenue for 4Q08 declined 6.2% to $3.53 billion, as falling ad revenue in the company’s TV, Radio and Outdoor businesses was partially offset by the acquisition of CNET Networks and a slight increase in publishing revenue. We expect the decline in ad revenue to continue accelerating, as TV political ads evaporate and the economy deteriorates, both in the U.S. and abroad.

Operating earnings are falling at an accelerating rate as the company suffers deleverage of its declining revenue base. Adjusted operating income before depreciation, interest and taxes plummeted 30% to $590.7 million, a sharp drop from the 15% year-over-year decline in 3Q08. The company comfortably covered its interest expense of $138.8 million.

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