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Corus, the media company behind the Oprah Winfrey Network, said Thursday it would not meet profit targets for the second straight quarter. (MARIO ANZUONI/REUTERS)
Corus, the media company behind the Oprah Winfrey Network, said Thursday it would not meet profit targets for the second straight quarter. (MARIO ANZUONI/REUTERS)

media

Corus profit disappoints Add to ...

Dividend investors may find a lot to like in Corus Entertainment Inc.’s fat yield, but only if they’re prepared to wait out what could be an extended soft patch in the media company’s fortunes.

Its shares slid nearly 5 per cent on Thursday after the company said it would miss the lower end of its profit guidance due to weak radio advertising and disappointing sales of products tied to its TV shows.

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Revenue for the company’s third quarter ended June 30 fell 2 per cent, dragged down by a 23-per-cent dive in merchandizing and distribution sales, alongside a 5-per-cent drop in radio revenue and a 1-per-cent dip for television.

It’s the second consecutive quarter that the Canadian media company behind Toronto rock station Q107 and OWN: Oprah Winfrey Network (Canada) has fallen short of expectations.

“Clearly we had anticipated a stronger back half than what has materialized,” Corus chief executive officer John Cassaday told investors in a conference call on Thursday afternoon. “We did significantly overestimate the strengthening of the Canadian economy in the back half of this year.”

The media sector has been suffering from softer advertising sales as a result of a weaker Canadian economy as well as competition from a growing number of alternative platforms such as online and satellite stations.

Corus has also been hurt by slowing sales of merchandise tied to its TV properties. For instance, products tied to its Beyblade show have suffered as the brand’s popularity wanes among fickle young fans.

Corus shares fell 7 per cent Thursday before closing down $1.20 or 4.85 per cent to $23.55 on the Toronto Stock Exchange. Shares have ranged between $21.67 and $26.49 over the past 52 weeks.

CIBC World Markets Inc. analyst Robert Bek said that, while the reasons for the miss “aren’t unreasonable,” he doesn’t think now is the best time for most investors to buy in.

“We’re comfortable that it’s not going farther down … but the prospect of having a good run here requires them to actually post a strong quarter and I don’t think [the fourth quarter] is shaping up to be that, from what we've seen,” said Mr. Bek, who has a “sector perform” rating on the stock and a target of $25.

Still, he said the shares may appeal to a more patient investor interested in the company’s 4.4 per cent dividend yield.

“You have downside protection with a good yield and that in this kind of market is somewhat coveted,” he said. “There’s no risk to the dividend, so that’s positive.”

Most analysts are lukewarm on the company’s stock, with seven labelling it a “hold” and only three calling it a “buy,” according to Bloomberg.

The shares’ biggest selling points are the generous yield and a relatively modest valuation. They change hands for less than 13 times projected earnings for the next 12 months, which is considerably lower than the 18 times average for similar media companies.

The company owns 37 radio stations, as well as several television services, such as kids’ programmers YTV and Treehouse, as well as women’s brands such as W Network and Cosmopolitan TV.

In a report ahead of Thursday’s earnings release, Scotia Capital analyst Paul Steep said he is cautious on the media sector in general, given the softening advertising market.

He noted a preference for stocks with strong balance sheets and ability to generate free cash flow.

“Corus continues to meet these criteria despite being impacted by a weaker ad market,” Mr. Steep said.

Corus said third-quarter revenue was $200.1-million, compared with $204.1-million a year earlier.

The company earned $34.5-million, or 41 cents a share in the quarter, excluding gains related to the sale of its interest in Food Network Canada.

Analysts were expecting earnings of 52 cents a share on revenue of $207.95-million, according to Thomson Reuters I/B/E/S data.

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