Viacom chief Philippe Dauman takes a swing at critics -- and stock price plummets

Beleaguered Viacom Inc. Chief Executive Philippe Dauman came out swinging Tuesday, seeking to assure investors that he was working hard to reverse the company’s flagging fortunes.

In his first earnings call with Wall Street analysts since being elected Viacom’s chairman last week, Dauman blasted the company’s detractors, whom he called “naysayers, self-interested critics and publicity seekers.”

But Dauman’s comments did little to mollify
investors, who are increasingly unhappy with Viacom’s weak financial performance and slipping stock price.

Viacom shares plummeted $8.99, or 21.5%, to $32.86 on Tuesday, a 52-week low. The company has lost more than 50% of its value in the last year.

“It’s a very sharp rebuke of his leadership,” said Eric Jackson, an activist investor and managing director of SpringOwl Asset Management, which has been pushing for management changes at Viacom.

The turmoil came less than a week after Viacom board members voted 10 to 1 to install Dauman as chairman, replacing his mentor, 92-year-old Sumner Redstone, who still controls the company.

Redstone’s daughter, Shari Redstone, who serves as Viacom’s vice chair, cast the lone vote against Dauman, signaling that she disapproves of the direction of the company.

Dauman had little good news to share with investors Tuesday when he reported that the company’s profit for the October-December quarter dropped 10% from the year-earlier period.

Viacom continues to wrestle with weak ratings at its moneymaking MTV and Comedy Central cable channels. Its lackluster Los Angeles movie studio, Paramount Pictures, posted a $146-million operating loss during the quarter because of a shortage of movies in its pipeline.

Investors seemed spooked when Viacom provided a downward revision on its guidance for affiliate fees. Dauman also declined to say whether Viacom might have to trim its fees in order to strike a new distribution deal with one of its biggest partners, satellite TV giant Dish Network. That worried some analysts because cable programming fees are the biggest source of profit for the media company, which also boasts such channels as Nickelodeon, TV Land and BET.

“Most analysts went away feeling that the CEO, and now chairman, doesn’t fully grasp the challenges facing the company,” Jackson said.

Dauman, who has been chief executive since 2006, had sought to make the case that Viacom had a long-term strategy to improve its stock price and quarterly results. He suggested Tuesday that part of the problem was “noise” in the market that was obscuring Viacom’s prospects, including a rebound in the ratings at its children’s channel, Nickelodeon.

Richard Greenfield, a prominent analyst with BTIG Research, asked Dauman: “What was the noise that you specifically are pointing out that obscures the underlying result?”

Dauman snapped: “Well, if you haven’t been listening you don’t know what the noise is. I think it is obvious to everybody what the noise is.”

The New York media company has been beset by boardroom drama in recent months amid allegations that Sumner Redstone might be mentally incompetent.

A former Redstone companion, Manuela Herzer, has asked a judge to intervene and block Redstone’s decision in October to appoint Dauman as his agent responsible for his advance healthcare directive should Redstone become unable to make decisions for himself. Herzer’s attorneys have demanded depositions of both Redstone and Dauman.

Shari Redstone said that she would prefer that someone independent and not otherwise “intertwined in Redstone family matters, but rather a leader with an independent voice,” preside over Viacom as chairman.

“Let me be absolutely clear: I could not be more
focused on getting Viacom’s stock price back to the much higher level it enjoyed under my leadership just a short time ago,” Dauman said during his prepared remarks.

Several analysts revised their price targets for Viacom.

“Status quo is not a plan,” Barclays analyst Kannan Venkateshwar wrote in a report that questioned Viacom’s strategy.

“We came away a bit more concerned … that management, despite the company’s overall anemic trend lines, seems to be relying on growing out of its problems organically and maintaining its strategic status quo,” Venkateshwar said.

Another prominent analyst, Michael Nathanson, suggested that Viacom consider asset sales, including Paramount Pictures.

For the quarter that ended Dec. 31, Viacom reported earnings of $449 million, or $1.13 a share, compared with $500 million, or $1.20, during the year-earlier period.

Revenue tumbled 6% to $3.2 billion for the quarter, which is Viacom’s first fiscal quarter.

Paramount, once again, was the major cause of Viacom’s profit woes.

The Melrose Avenue film studio did not produce a hit during the quarter. It posted a $146-million operating loss in the October-December quarter, reflecting declines in theatrical and home entertainment revenues. The studio’s revenue fell 15% to $612 million, compared with $720 million in the year-earlier period.

The company is banking heavily on its release this week of “Zoolander 2” with Ben Stiller and Owen Wilson.

At the important TV networks division, revenue dropped 3% from a year earlier to $2.6 billion. Ad sales have been soft because of ratings weakness.

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