Viacom's Dazzling Performance

Mel Karmazin may have left the building, but his legacy of performance appears to live on at CBS parent Viacom (NYSE:VIA). The media conglomerate known best as the lead purveyor of reality television -- from Survivor to The Amazing Race to the granddaddy of 'em all, The Real World from its MTV unit -- turned in another strong quarter this morning.

Second-quarter revenues were up 7% to $6.8 billion from $6.4 billion in the same period a year ago. Earnings jumped 14% to $754 million, or $0.43 per diluted share, up from $660 million, or $0.37 per stub, a year ago. Free cash flow for the quarter was up 14%, to roughly $1 billion. Cash flow is up more than 20% year-to-date.

Executives once again pointed to ad revenues as the key driver of Viacom's growth. Ads have so far this year accounted for 49% of the firm's $13.6 billion in revenue. That's up from 46% at this same point during 2003.

The ad resurgence is probably at least partially linked with the popularity of CBS' spate of reality shows and Viacom cable properties, including MTV and Nickelodeon. Cable TV revenues were up 18% for the quarter and are up more than 19% year-to-date. Revenues from broadcast television are up 11% for the quarter, and 15% thus far during 2004.

If nothing else, the good results could grab the attention of investors who have all but ignored the sector after turmoil at competitor Disney (NYSE:DIS). And why not? Viacom has already generated $1.8 billion in free cash flow this year. That means it trades for just seven times its free cash flow when compared to its $12.6 billion enterprise value. Disney trades for 18 times its enterprise value-to-free cash flow. And Fox Entertainment (NYSE:FOX) and General Electric (NYSE:GE) aren't cheap either, trading at 24 and 26 times their cash flow, respectively.

It's too early to tell if Viacom shares really are a bargain, but cash flow could continue to improve after Blockbuster (NYSE:BBI) is finally spun off this fall. Investors jumping in here will have the benefit of getting paid to sit around as Viacom pays a 0.69% dividend as of this writing. If that sounds good to you couch potatoes, then it might be time to tune in.

For more Fool coverage of the entertainment biz:

• Fox continues to get real.
• Disney management may have gotten the clue about boosting its dividend.
• Viacom's Amazing Race is underway.

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Fool contributor Tim Beyers isn't much of a reality TV fan, but he has yet to watch The Amazing Race. He wonders what all the fuss is about. Tim owns no stake in any of the companies mentioned, and you can view his Fool profile here.