Discovery profit up 46 percent, as it grows abroad

NEW YORK Wed Feb 10, 2010 11:34am EST

NEW YORK (Reuters) - Discovery Communications Inc reported a 46 percent jump in fourth-quarter profit on the back of strong distribution revenue and advertising sales in its international TV business.

Once again, Wednesday's quarterly results from the parent of the Discovery Channel, Animal Planet and the Science Channel showed why it has weathered the ad downturn far better than most media companies.

For one thing, strong cable channels have brought in reliable subscription fees; for another, its advertising base isn't reliant on the hardest hit categories, such as autos and financial services. Together, that helped drive revenue up a better-than-expected 7 percent in the quarter.

Macquarie analyst Ben Stretch said in a note that the results came in "comfortably ahead of our estimates. And it's of high quality too - margin expansion looks impressive. Advertising revenue trends also look quite reasonable domestically and showed a strong reacceleration internationally."

But he added that strong results from Discovery were "well anticipated" and he maintained a neutral rating on a stock that has roughly doubled in the last year.

Discovery shares dropped about 3 percent on Wednesday, erasing most of the gains made over the last two days.

Helped by the weak dollar, Discovery's international business turned in a particularly rosy performance. But even excluding the impact of foreign currency fluctuations, revenue increased 16 percent, with particular growth in Europe, the Middle East, Africa and Latin America.

"There are a number of big markets where we're well-positioned," Chief Executive David Zaslav said on a conference call. In countries like India and Brazil, "as the market grows, we'll grow with it."

The company reported net income rose to $155 million, or 36 cents a share, matching analyst expectations. A year earlier, it reported a profit of $106 million, or 25 cents a share.

While other media companies have posted declines in quarterly ad revenue, Discovery said sales at its U.S. networks rose 2 percent. It said ad sales are running about 5 percent higher, year on year, at the moment, and should grow by at least the mid-single digits for the year.

The results come after a year in which Discovery emerged as one of the hottest media companies. Shares have risen steadily since it became independent in late 2008, while it has struck high-profile joint venture deals with Oprah Winfrey and Hasbro Inc.

The Oprah Winfrey Network (OWN), in particular, has created buzz for Discovery. The company holds a 50 percent stake in the network, which could draw in substantial audiences since Winfrey will be leaving broadcast TV in September 2011, when she ends her popular daytime show.

And last month, Discovery joined ranks with Sony Corp and IMAX Corp to launch a dedicated 3-D network in the United States beginning in 2011.

As for its financial performance, Discovery said on Wednesday that all of its main measures should increase in 2010, pointing to an improving ad climate and strong ratings for its networks, which specialize in adventure, travel and cooking shows like "MythBusters" and "Shark Week."

It said revenue should range between $3.63 billion and $3.75 billion. That stacks up against the $3.72 billion analysts forecast, and would be up about 3 percent to 7 percent from 2009.

Shares dropped $1.28 to $27.99 in Nasdaq trade.

(Reporting by Paul Thomasch; Editing by Derek Caney)

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