Shares of Paramount Global nose-dived 28% early in Thursday’s trading session after the media giant revealed that it would be reducing its quarterly dividend from 24 cents per share to 5 cents per share.
CEO Bob Bakish said the move would “further enhance our ability to deliver long-term value for our shareholders as we move toward streaming profitability.” Chief Financial Officer Naveen Chopra added that the dividend cut would result in approximately $500 million of annualized cash savings while still returning some capital to shareholders.
“I think the the changes we made to our capital allocation policy are totally appropriate for a company that has the compelling growth opportunity we see today,” Chopra told analysts during Thursday’s earnings call. “Operating in the current macro environment, there’s no debate that our streaming momentum has obviously continued to build, but the reality is the macro environment has not gotten less complex. So it’s prudent really for all companies to optimize their balance sheet for flexibility. And that’s exactly what we’re doing by reducing the quarterly dividend to five cents.”
Chopra emphasized that the dividend cut does not mean that the company intends to spend more than previously planned on streaming.
“You should really think of this as the cash benefit of reducing the dividend along with other initiatives like non-core asset sales and continued cost management is intended to help delever our balance sheet, which is generally a smart thing to do in an uncertain macro environment and is also a key ingredient in creating long term shareholder value, which is of course the primary goal that we have,” he added.
Wells Fargo analyst Steve Cahall, who has an underweight rating and $11 price target on Paramount stock, said the dividend and bigger first-quarter cash outflow is “likely rekindle discussions around cash [generation], and what the key drivers are for getting to [free cash flow] positive.”
Paramount executives have said that the company would return to positive free cash flow in 2024.
“We think a dividend cut typically signals material shifts in managements’ views of risk profiles,” Cahall added. “Our bias is that [first quarter] results and the dividend cut likely suggests forward estimates have downside risk.”
Cowen analyst Doug Creutz, who has a “market perform” rating and $25 price target on Paramount stock, added that the dividend cut is “clearly shaking investor confidence in the trajectory of the business.”
“Why cut now if things are on the verge of getting better?” Creutz asked. “Overall, we don’t see much in the results to change our view that while management is striving valiantly to improve business
performance, competitive pressures remain intense and Paramount does not have the library/franchise depth that Disney and Warner enjoy.”
In addition to the dividend cut, Paramount missed Wall Street earnings expectations after reporting an overall $1.1 billion loss, adjusted earnings per share of 9 cents and revenue of $7.3 billion. Analysts were expecting earnings per share of 12 cents on revenue of $7.42 billion.
Taking into account Thursday’s drop, Paramount shares have fallen approximately 2% year to date, with the sudden fall wiping out gains shareholders had realized in 2023.
