NEW YORK (Reuters) - Viacom Inc and Interpublic Group offered the clearest signs yet that the advertising market is recovering, reporting quarterly results on Thursday that showed automakers, banks and retailers are finally ratcheting up marketing budgets.
Analysts said the results should help put to rest questions over whether the run-up in media stocks -- up 12 percent this year -- has been smart investing or wishful thinking. Until now, there has been scant evidence that spending on advertising campaigns has increased at all from its lows.
At Viacom, which owns the MTV and Nickelodeon cable channels and Paramount film studio, advertising sales rose 3 percent worldwide and 1 percent in the United States. It was the first increase in ad sales in nearly two years.
“These numbers were very good, very solid,” said Alan Gould, an analyst with Soleil-Gould Research Corp. “The single most important number in there was domestic advertising. It looks like they are finally turning the corner.”
Viacom Chief Executive Philippe Dauman said he expected the recovery to continue over the coming months, and pointed to increased spending by retail, technology, and toy companies on TV campaigns.
“The overall mood of our clients is increasingly optimistic and marketing budgets are beginning to loosen up,” Dauman said on a conference call.
Viacom shares rose 2 percent after its first-quarter results, which showed a better-than-expected rise in earnings to $243 million, or 40 cents a share. Revenue fell 4 percent, largely due to results from its film studio, which released fewer movies and struggled with depressed DVD sales.
Interpublic Group, home to ad agencies like McCann Worldgroup, narrowed its quarterly loss to $71.5 million, or 15 cents a share. Organic revenue, a closely watched benchmark, rose 3 percent in the United States, a major turnaround from last year’s consistently steep declines.
Interpublic said it had brought on more staff in the first quarter, seen a rebound in spending by financial services clients, and now expected worldwide organic revenue to be flat to slightly positive this year.
Chief Executive Michael Roth said the results “support our belief that the broader economic conditions have stabilized, and we’ll keep seeing progress as we move through 2010. Importantly, revenue performance improved as the quarter unfolded.”
Interpublic shares were up 2.8 percent, and are now up nearly 28 percent this year, indicative of the broader rally in media stocks. Indeed, Viacom, News Corp, Time Warner Inc., Walt Disney Co. and CBS Corp have all far outpaced the broader Standard & Poor’s 500 this year.
Signaling its confidence in business, Viacom said its board would meet over the next few months to determine an appropriate program to return cash to its investors. That could be through a dividend or a stock buyback program, which Viacom suspended in the fall of 2008.
It has been a painful time for media companies walloped for the past two years by the economic downtown and nervous advertisers who froze spending.
“Just one year ago we found ourselves operating in a very different and a very difficult environment,” Viacom Executive Chairman Sumner Redstone said on Thursday’s call. “There is unfortunately not a great deal of good news to be found and even I had to reach into my reserve stores of optimism to find a few bright spots on the horizon.”
This quarter’s revenue upside comes against easy comparisons from a year-ago. Also, whether Viacom’s media rivals have also boosted ad sales will not be clear until they report results over the next couple of weeks.
The initial thaw of ad revenue comes just as media companies are preparing for the biggest TV ad selling weeks of the year, known as the upfronts.
David Bank, an analyst with RBC Capital Markets, thinks the sellers will have the upper hand this season. “It’s going to be fast and robust.”
Editing by Lisa Von Ahn, Derek Caney and Matthew Lewis