UPDATE 3-Discovery profit down, but ad sales show life

* Q3 EPS 22 cents vs Wall Street view 27 cents

* Q3 rev $854 mln vs Street view $850 million

* U.S. ad sales climb 5 pct; Q4 to be flat to up

* Shares up 2.7 pct prior to earnings release
(Adds comments from executive; stock price)

By Paul Thomasch

NEW YORK, Nov 3 (Reuters) - Discovery Communications Inc
(DISCA.O) posted a larger-than-expected decline in profit, but
stronger U.S. advertising sales stole the show and raised hopes
that parts of the media business are finally recovering.

The quarterly results make Discovery -- a company whose
share are up 93 percent this year -- a rarity in the media
business, where advertising sales have been devastated by the
recession.

The parent of the Discovery Channel, Animal Planet and the
Science Channel is typically less reliant on some of the
hardest hit U.S. ad categories, such as automakers and
financial institutions, for sales.

Another factor is that national cable channels -- like
Discovery's -- have proven relatively resilient to the downturn
when stacked up against local TV or broadcast networks.

Discovery's U.S. ad revenue rose 5 percent in the third
quarter, and the company said sales would be flat to slightly
positive in the fourth quarter.

"People are going to be most concerned with how the ad
revenue was looking," said Miller Tabak analyst David Joyce,
who said Discovery's third-quarter ad sales surpassed his
expectations. "Overall, it seems to be an operational
outperformance."

Profit fell to $95 million, or 22 cents a share, largely
because of extra stock compensation expenses. A year ago, it
earned $134 million, or 44 cents a share. Wall Street was
expecting earnings per share of 27 cents.

Revenue rose 1 percent to $854 million, surpassing the $850
million analysts polled by Thomson Reuters I/B/E/S had
expected.

Another major media company, Viacom Inc VIAb.N, showed a
4 percent decline in quarterly U.S. ad revenue in its report on
Tuesday, while executives said trends had improved.
[ID:nN03256435]. Time Warner Inc (TWX.N) and News Corp (NWSA.O)
report earnings on Wednesday.

In comments to investors and analysts on a conference call,
Discovery Chief Executive David Zaslav stopped short of saying
ad sales were fully on the road to recovery.

"It is too early to say things have turned, but demand is
much improved," he said.

But in addition to advertising, Discovery's revenue is also
underpinned by the fees it collects from cable companies that
carry its channels. U.S. distribution revenue rose 5 percent
for the quarter.

Discovery shares closed 2.7 percent higher at $28.01 on the
Nasdaq on Tuesday ahead of the quarterly results. The shares
were little-changed in after-hours trading.
(Reporting by Paul Thomasch, editing by Matthew Lewis)