Warner Music results beat expectations

By Sinead Carew

NEW YORK (Reuters) - Warner Music Group Corp posted stronger-than-expected quarterly results on Tuesday, helped by sales of albums from Metallica and Kid Rock, but Wall Street remained concerned about the company's outlook.

Analysts said they doubted the world's third-largest music company would be able to cut costs fast enough as revenues fall in the worsening economy.

"Despite a decent earnings performance in the quarter, we remain on the sidelines with Warner Music shares as we believe the near-term environment will be much more difficult than the last quarter," said Chris White, an analyst at Wedbush Morgan.

Warner Music reported that profit rose to $6 million, or 4 cents per share, for its fiscal fourth quarter ended September 30, from $5 million, or 3 cents a share, in the same quarter a year ago. Analysts, on average, expected a loss of 2 cents per share, according to Reuters Estimates.

Revenue fell 1 percent to $854 million. On a constant currency basis, revenue fell 5 percent.

"Warner's done a very consistent job of improving its market share," said Pali Research analyst Richard Greenfield. "The larger issue heading into 2009 is that the rate of decline of the music industry is accelerating. Management seems to be confident they can reduce costs to offset declines. Is that true even if revenue declines accelerate?"

Warner increased its share of the music market to 21.5 percent, up 0.5 percent from a year ago, the company said.

But because of the global economic situation and its own music release schedule, Warner said fiscal 2009 results may look worse earlier in the year than later.

"The volatile global economy and timing of our release schedule may result in back-end weighted fiscal 2009 results," said Chief Financial Officer Steve Macri.

Executives said it was too soon to measure the impact of the cautious retail environment on Warner's business. They noted that music was relatively resilient in previous downturns, but said it remained to be seen if that would be the case this time.

Warner's digital revenue was $167 million, or about 20 percent of the total in the fourth quarter, barely changed from $166 million in the third quarter. About 65 percent of digital revenue comes from the United States.

The company said strength in the Japanese market, dominated by mobile digital music, such as ringtones, and modest gains in Italy and France were more than offset by weakness in Spain, Germany and the rest of Europe.

It also said sales of ringtones in the United States and Europe were weak.

Warner Music shares closed up 12 cents to $2.92 on New York Stock Exchange, after rising as high as $3.44 earlier in the session. The 52-week high is $9.05, set last May.

(Additional reporting by Yinka Adegoke; editing by Derek Caney and Jeffrey Benkoe)