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Viacom Earnings Jump In Second Quarter

Updated at 6:20 p.m.

Viacom's second quarter earnings jumped on increased profits from its media networks, exceeding analyst's expectations.

The company said it expected ad sales to remain strong next quarter and is planning some changes in the way it sells commercial time to monetize ratings increases at some of its networks.

Net earnings were $376 million, or 63 cents per share, up 53% from $245 million, or 40 cents a share,  in last year's second quarter.

Revenues rose 20% to $3.3 billion.

"The investments we've made in the research and programming over the past several years are paying off in the form of strengthened brands and hit programming that are attracting growing audiences in the U.S. and around the globe." ," said CEO Philippe Dauman during the company's earnings conference call with analysts Thursday. "This entertainment content is also finding fresh audiences on a growing number of new platforms that carry our content, audiences that our advertising partners find increasingly difficult to reach. As we look ahead to the advertising upfront, we are very well positioned to capitalize on the tremendous ratings growth and compelling programming slates we have to offer, particularly on our major networks."

Operating income for Viacom's media networks group, which includes MTV, Nickelodeon and Comedy Central, rose 13$ to $806 million. Programming expenses rose 8%. Tom Dooley, Viacom's COO , said he expected programming expenses to grow between 7.5& and 8% for the full year.

Revenues for the  media networks unit were up 11% to $2.1 billion, reflecting a 12% increase in advertising revenues. Domestic ad sales were up 11%, reflecting last year's strong upfront and higher rates in the scatter market. Affiliate revenue grew 9% to $851 million. Ancillary revenues were up 10% to $155 million mainly because of TV syndication sales and consumer product revenue.

Dauman said he expects domestic ad revenue to increase again next quarter, partly because Nickelodeon's Kids Choice awards, which took place in the second quarter last year, will air in the third quarter this year.

In the upfront market for 2011-12, "we are looking forward to significant year-over-year gains in both volume and pricing," Dauman said. He said that last year, the company wasn't in position to monetize the "phenomenal" and  "broadcast-size ratings" to top shows on networks like MTV are generating.  "And now we can. And we intend to do so for future seasons of those shows."

MTV has traditionally sold commercial time on a daypart basis, rather than show by show. In response to a question from Sanford Bernstein analyst Michael Nathanson, Dooley said that is changing to some degree.

"We're delivering one of the sweetest audiences that you can get out there so we're looking for pricing, and we are modifying some of the ways we sell and working with advertisers and innovative ways to package our advertising portfolio to get the most value out of it for us and provide the most value to the advertisers who want to buy into those shows. So we are shifting it around," Dooley said. "We haven't dramatically changed the way we sell, but we are working with different advertisers in different ways to maximize revenues for us and the benefit for them."

Dauman also said the kids upfront is underway and the market is robust.

Viacom made $15 million in equity income from investments, most of which came from its stake in Epix. Meanwhile the amount of revenue coming in from Netflix and Hulu "is not that significant," according to Dooley.

Viacom will be increasing the capital it is returning to shareholders. It repurchased $500 million in stock during the second quarter, $100 more than planned, according to Dauman. He said the company plans to complete the majority of its $4 billion buyback programs by the end of fiscal 2011. He said he also intends to ask the board of directors to increase the dividend it pays to stockholders.

Viacom stock rose $1.78 to close at $50.63 Thursday and  analysts gave positive reviews to the company's  performance.

"We see remarkably robust double-digit gains across virtually all core media networks, film and ancillary businesses, likely accelerating momentum into [the second half]," said Tuna Amobi, analyst at Standard & Poor's. " We note steadfast execution of $4B share buyback plan, with potential near-term dividend increase also conceivable. Morning call should help set tone for spring's likely solid cable TV upfront, coming off MTV's palpable ratings rebound in core demos."

Bernstein's Nathanson said that "given the company's continued ratings strength and a continuing rebound in the ad economy, we believe there is still upside for the stock with further multiple expansion and higher earnings revisions ahead. We would expect consensus earnings to rise after today's earnings release and remain confident that ad growth will remain in the double digits into next quarter."