Discovery profit falls, hurt by Oprah's OWN

Tue May 8, 2012 9:05pm IST

The Discovery Communications headquarters building is seen in Silver Spring, Maryland December 3, 2009. REUTERS/Jim Bourg/Files

The Discovery Communications headquarters building is seen in Silver Spring, Maryland December 3, 2009.

Credit: Reuters/Jim Bourg/Files

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(Reuters) - Discovery Communications reported a lower-than-expected quarterly profit on Tuesday, hurt by losses at the Oprah Winfrey Network (OWN), sending its shares down 6.5 percent.

OWN, the joint venture with the "queen of talk" that is struggling with lackluster ratings, was part of the reason Discovery reported a nearly 30 percent decline in first-quarter earnings.

"We have a long way to go," Discovery President and Chief Executive David Zaslav said on a conference call with analysts about OWN. "We remain confident in the growth potential of this network."

OWN has slashed costs by cutting 30 employees and canceling its heavily hyped Rosie O'Donnell talk show. It recently came out with a new slate of reality shows to help the network find its legs.

Discovery expects the network's cash flow to break even during the second half of 2013, Zaslav said on the call.

Discovery reported first-quarter earnings per share of 57 cents, 3 cents below analysts' average forecast, according to Thomson Reuters I/B/E/S.

Revenue rose 16 percent to $1.1 billion. Analysts expected $1.06 billion.

The challenges at OWN overshadowed Discovery's revenue growth, boosted by strong ad sales and distribution deals with the likes of Amazon (AMZN.O) and Netflix (NFLX.O) for its content from other cable networks such as Discovery Channel, TLC and Animal Planet.

"I thought the results were outstanding," Morningstar analyst Michael Corty said, citing increases at its domestic and international divisions. "The Oprah issue -- that shouldn't be a surprise, it takes time for a network like that to grow."

Executives did not wave any flags signaling a slowdown and raised the full-year revenue forecast. Discovery now expects revenue of $4.55 billion to $4.65 billion, up from its prior forecast of $4.45 billion to $4.58 billion.

Advertising revenue at its U.S. Networks, which jumped 13 percent in the first quarter, is expected to grow in the high single digits in the second quarter.

The company also announced a $1 billion increase to its existing stock repurchase program, to $3 billion.

Discovery's shares fell $3.52, or 6.5 percent, to $50.56 in late-morning Nasdaq trading.

(Reporting by Sayantani Ghosh in Bangalore; Editing by Roshni Menon, Maureen Bavdek and John Wallace)

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