The long, lazy Fourth of July weekend is over, and that means the second quarter earnings reporting season is right around the corner.

For both cable and media companies, this reporting season could be crucial to regaining some of the confidence that's been badly shaken by one corporate scandal after another. For media companies, which reported sorely needed upticks in advertising in the first quarter, investors will look for concrete evidence that advertising trends have turned positive, as well as signs that executives are serious about reducing debt.

EARNINGS REPORTS COMING UP

company	release date	Q2 '02E	Q2 '01A
AOL Time Warner	July 24	$0.22	$0.32
Fox Entertainment	Aug. 16	$0.06	$0.00
News Corp.	Aug. 16	$0.15	$0.12
Viacom	July 25	$0.30	$0.01
Walt Disney Co.	Aug. 2	$0.18	$0.29
SOURCE: FIRST CALL/THOMSON FINANCIAL

Analysts are still fine-tuning their estimates for the big media companies, many of which report earnings several weeks before the MSO group.

Merrill Lynch's Jessica Reif Cohen lowered slightly her estimates for Viacom's second quarter earnings before interest, taxes, depreciation and amortization (EBITDA) due to its exposure to Adelphia and some slight exposure to Kirch Media, the bankrupt German concern. In its bankruptcy filing last week, Adelphia said it owed a total of $27.5 million to Viacom networks Showtime, BET and MTV. To account for the potential losses Reif Cohen lowered Viacom's EBITDA estimates by $35 million, to $1.39 billion, an increase of 2% over the second quarter of 2001. Merrill projects that Viacom's revenue will increase 2% in the second quarter, to $5.8 billion.

Viacom spokeswoman Susan Duffy said the company's exposure to Adelphia is not material; it was not clear whether the company had taken reserves against potential losses.

Reif Cohen said in a research note that she expects Viacom's operating momentum to pick up dramatically in the second half of the year. Despite a sharp drop last Monday, Viacom's stock has been the strongest performer among media companies this year; at $41.79, shares are down just 7% year-to-date. By comparison, AOL TW has fallen close to 60% and News Corp. almost 30%.

The weak online advertising market continues to hurt AOL Time Warner. Merrill predicts a 1% rise in EBITDA for the quarter, to $2.44 billion, driven by solid growth at Time Warner Cable and in AOL TW's filmed entertainment units. Earlier this year the company said it expects flattish EBITDA growth. Despite its recent move to restructure its cable partnership with Advance/Newhouse, investors still want to see advertising growth at America Online and a broadband access deal with other major cable players ? either of which could be a catalyst for the stock.

With the crisis in corporate accountability at a fever pitch, cable and media executives alike have little margin for error when it comes to meeting their financial guidance. Investors will flee at the slightest hint of an unhappy surprise in the making, as two recent examples illustrate. On the afternoon of June 26, a rumor crept through the market that AOL Time Warner was about to issue a warning that it would not meet its second quarter numbers. Despite the company's strong denial, the stock closed at $13.63 that day, down 11.5%. And on June 20, Comcast lost 7% after talk that a major credit rating service would lower its rating on the company's debt.

Cable operators, whose stocks have been battered in the wake of Adelphia's three-month descent into bankruptcy, are in a more delicate situation. MSOs have been hit by continuing concern over heavy leverage, the accounting scandal at WorldCom, and being in the same sector as Adelphia. Although first quarter operating trends point to a strong year, it's during the second quarter that operators typically are hit with seasonal disconnects, especially those with systems in markets with heavy college populations. MSO executives may have to work even harder during this reporting season to pacify investors' concerns and mend tattered confidence.

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