Viacom proves me wrong with results driven by box-office hits

Well, you can't win 'em all. I certainly found that out with Viacom's (NYSE: VIA) latest quarterly results. The media company delivered the complete opposite of my expectations . Let's go through the numbers.

Revenues for the second quarter increased 21% to almost $3.9 billion. Net income from continuing operations expanded 19% to 64 cents per share. That beat the estimate I was using by three pennies (other sources listed a lower estimate for earnings). No matter how you slice it, Viacom showed Wall Street how it's done.

Now, let me admit how wrong I was. I thought media networks would shine during the quarter and that the film division might not do as well. Operating income at media networks increased 4%, while Paramount and its colleagues increased their segment's profit by almost 300%! You can thank the new Indiana Jones movie, as well as Marvel's (NYSE: MVL) Iron Man and DreamWorks Animation's (NYSE: DWA) Kung Fu Panda, for bringing the crowds into the multiplex and the money into Viacom's coffers.

I thought that perhaps the studio would benefit later in the year from the box-office hits because marketing expenses might eat into the quarter (according to the conference-call transcript, there was a large quantity of spending in Q2 2007 related to the opening of the Transformers blockbuster). Although Viacom will benefit later in the year from the home-video release of these projects, the 84% increase in theatrical revenues must have covered a lot; the company's content library also did some heavy lifting, including the original Indiana Jones films on DVD, which had strong sales due to interest in the new sequel. Interestingly enough, the release mentioned that marketing expenses for the company's Rock Band video game were an offsetting element in the quarter for the media segment.

You've got to love this quarter if you're a shareholder of Viacom. Unfortunately, the stock closed down by 3.8% in after-hours trading on Tuesday. It's a crazy market, and even though I think Viacom may be cheap, I'm not sure I'd step in until I saw some strength in the stock. Media businesses such as Time Warner (NYSE: TWX), Disney (NYSE: DIS), News Corp. (NYSE: NWS) and CBS (NYSE: CBS) have all been difficult holdings for investors as of late. I own Disney myself and have been dissatisfied with its stock. You'll have to do a lot of due diligence before deciding which media entity is right for your portfolio (if any).

Disclosure: I own Disney and Marvel; positions can change at any time.

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