After reaching a historic high in the mid-$30s in June 2007, CBS Corporation (NYSE: CBS) has seen its fortunes fall in a continuous slide. It's now trading for less than $5 per share.
After reporting reduced revenues for the fourth quarter of 2008, CBS is taking significant steps to conserve capital and strengthen its balance sheet.
The company reported a drop in revenue of 6%, which would have been even greater but for the contribution of recent acquisitions.
Television and radio ad sales were weak, and the Outdoor advertising unit had a 15% drop in revenue. While Outdoor was negatively impacted by foreign exchange rate changes as the U.S. dollar strengthened, excluding currency, revenues for this unit were still down a disappointing 8%.
Earnings for the period exceeded the First Call consensus of 26 cents per share by 8 cents.
The earnings outlook for the company is cloudy, as CBS remains vulnerable to the weakness in advertising sales resulting from slashed spending by its customers. Companies looking to improve earnings are viewing their advertising dollars as one of the first places to reduce expenditures.
As expected, CBS reduced its dividend. However, the reduction was well in excess of expectations, dropping from 27 cents per quarter to 5 cents. The reduction in dividend payments will allow the company to repay $3 billion in debt maturing over the next three years from cash flow. The company will not require any refinancing or reserves to make these payments.
Chief Executive Officer Leslie Moonves stated in the release that, "The dividend cut is a prudent action to take while we await improvement in the economy and the credit markets."
CBS will have reduced its outstanding debt from nearly $7 billion to $4 billion after making these payments. The debt-to-equity ratio for the company will have dropped from the current .77 to below .45.
The action on the dividend is also in response to comments from S&P, which stated that CBS should cut its dividend payments in the face of declining ad sales.
In a statement reflective of the uncertainties affecting CBS, as well as other companies, Executive Chairman Sumner Redstone observed that, "We are clearly in the midst of one of the most difficult financial environments in history, with very little visibility on how long these economic conditions will exist or if there is worse to come."
CBS remains the most-watched United States television network. The question is whether network television can withstand the growth in alternative avenues for viewing home entertainment.
For CBS, the answer may lie in an expansion of the company's recent forays into Web-based entertainment venues.
Louis Navellier's PortfolioGrader Pro, which offers free ratings for nearly 5,000 Wall Street stocks, rates CBS a D or Sell.
Jamie Dlugosch is a contributor to OptionsZone.com.
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