Bernstein Research’s Todd Juenger raises that possibility this morning as he and other analysts tweak their forecasts (mostly down) ahead of the barrage of Big Media reports due to be released beginning next week. The strategy — which companies virtually never acknowledge publicly — is called a “kitchen sink” because execs find creative ways to load every cost they can find in to a quarter that they figure investors are going to ignore. (In other words, they throw everything in but the kitchen sink.) That sets a low bar later on when they want to show how much things have improved. You often see companies kitchen sink earnings when a new CEO steps in. But it can also happen in a quarter like Q3: Execs have said that results could be strange. Expectations “are very low, as the Olympics stole an avalanche of ratings points and advertising dollars,” Juenger says. Investors also are unusually tolerant of Big Media companies these days. They’re seen as safe havens since they make most of their profits from cable networks — still a solid, growing business — and aren’t heavily exposed to the shaky economies in Europe and elsewhere. It’s dangerous, though, for companies to go with a kitchen sink strategy. If they don’t improve then they “will start to lose credibility in claiming that Q3 was an aberration.”
While analysts will be looking for sleight of hand in the reports, they’re sticking to fundamentals as they adjust their forecasts — mostly to account for the lousy recent broadcast network prime time ratings. Juenger just lowered his 2012 earnings per share estimates slightly for CBS, News Corp and Time Warner — but raised Discovery. “TV ratings continue to be down across most companies, and up across a few,” he says. But programming costs vary and “some of the networks who are investing the most in programming are having some of the worst ratings problems.” Cowen and Co’s Doug Creutz this morning also cited the ratings woes — which he describes as “brutal” — as he lowered his estimates for CBS, News Corp, and Disney. “While we think there are several causes of this season’s ratings declines,” he says, “the most important conclusion is that most broadcast networks are likely looking at significant advertising make-goods this season, negatively impacting the earnings of their owners.”
Yesterday Pivotal Research Group’s Brian Wieser lowered his Q4 earnings estimate for CBS. “While some of the ‘lost’ money is likely going to other networks with extra rating points to spare…a large share of this reduction will be due to economic weakness,” he says.
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