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Seagram predicts shortfall
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December 14, 1998: 8:59 p.m. ET
Further asset sales also on tap for entertainment and spirits company
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NEW YORK (CNNfn) - Seagram Co. Ltd., warned analysts Monday that fiscal second quarter profits will fall short of Wall Street's expectations, reflecting difficulties at its film studio.
In addition, the company said it hopes to sell up to $1 billion in non-core assets over the next two years. Company officials did not elaborate on what specific assets that would be sold.
Seagram (VO), the Montreal-based spirits and entertainment company, said it expects earnings before one-time items to total about 2 cents a share in its fiscal second quarter, ending Dec. 31, the same as in the year-ago period. Wall Street had expected Seagram to earn 21 cents a share before one-time charges, according to First Call.
Seagram executives addressed Wall Street analysts and money managers here in a 4-1/2 hour meeting that was closed to reporters.
"Our franchises are strong,'' Edgar Bronfman Jr., Seagram's president and chief executive, said in a statement. "Our growth prospects are real and immediate, led by our music business and recreation business. And, we will deliver on the promise of this transformation in each of the next few years.''
Box office duds have hurt earnings
Bronfman, who has been under fire to show that Seagram's investment in Universal will boost shareholder value, acknowledged the dry spell at its Universal Pictures studio. However, he vowed to turn the film studio around.
"Given the length of time we have gone without a major hit, comparisons will remain difficult for a number of quarters,'' Bronfman added. "But this is a business of cycles, and we are confident our fortunes can and will change.''
Last week, Seagram said its film studio would lose $65 million in the second quarter, reflecting poor box office results from films such as "Meet Joe Black,'' starring Brad Pitt and Anthony Hopkins, and "Babe: Pig in the City,'' the talking pig sequel.
The box office flops resulted in last month's departure of the chairmen of both Universal Pictures, Casey Silver, and its Universal Studios parent, Frank Biondi Jr.
Seagram said the second quarter estimates don't include charges associated with the recently completed $10.2 billion acquisition of PolyGram.
With the acquisition, completed last week, Seagram's Universal music group became the world's biggest music company.
Music business improving
Seagram said music should record pro forma earnings before interest, taxes, depreciation and amortization -- or cash flow -- of about $850 million for the fiscal year ending next June, versus $708 million the previous year, also on a pro forma basis.
Results during both years assume that Universal had owned PolyGram for the entire year.
Seagram told investors that as it integrated the music business, it aimed to save $200 million by June 2000, and another $100 million the next year.
"When I look at the music industry at the end of 1998, I see an industry with solid revenue and EBITDA prospects,'' Bronfman said. "But I see our own company outperforming the industry due, in part, to the cost savings we will generate in the short term.''
While the company has only spoken generally of coming layoffs in the music business, sources close to the company have indicated that about 3,000 layoffs on the way.
Cash flow at Seagram's flagship spirits and wine businesses, whose brands include Absolut vodka, Chivas scotch and Mumm Champagne, should "increase modestly'' this fiscal year.
The company said its theme parks business is expected to triple cash flow by the end of fiscal 2003 from about $150 million last year, helped by new parks in Orlando, Fla, in May, and in Osaka in 2001.  --from staff and wire reports
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