Yahoo Finance Universal falls as higher management pay costs swallow profit increase
By Geoffrey Smith
Investing.com -- Shares in Universal Music Group (AS:UMG) fell in Europe overnight on disappointment at the cost of the company's plans to juice management compensation with stock grants.
The music publisher, which announced stronger-than-expected results for the fourth quarter on Thursday, helped by sales of Taylor Swift's new album Midnights, said it expects big one-off costs from its transition to a new stock-based compensation this year.
UMG expects cash savings of up to €80 million (€1 = $1.0611) this year as it shifts more of total management pay to stock. Savings are expected to rise to €100M a year thereafter. However, in order to sweeten the transition for bosses who are seeing their base pay cut, it will give out €358M in one-off stock grants and will incur non-cash costs of €84M more due to accounting quirks. In all, Goldman Sachs estimated the total cost of stock-based compensation to be €630M this year.
UMG stock fell 3.7% by 06:00 ET (11:00 GMT) in Amsterdam to its lowest in three months.
The unpleasant surprise on executive pay overshadowed what was a strong end to a strong year for Universal, which notched over €1 billion in revenue from streaming for the first time in 2022. Overall sales rose 17% to €2.94B, with Swift's album alone contributing some 8% of that figure, according to JPMorgan estimates. Net profit, however, fell to €782M from €886M in 2021, as the company marked down its holdings in Spotify (NYSE:SPOT) and Tencent Music Entertainment (NYSE:TME) by a total of €617M.
There was also some disappointment at the fact that Universal's outlay of €1.6B over the last three years on back catalogs has only generated €94M of EBITDA in that period.
Earnings per share fell to 43c from 49c a year earlier.
Goldman analysts said the update was still reassuring in what it said about the strength of music demand in what is likely to be a tough year for consumer-facing stocks due to the ongoing squeeze on incomes from high inflation. The group said it expects revenue from streaming subscriptions to carry on growing at over 10% a year.
Related Articles
Universal falls as higher management pay costs swallow profit increase
Apple iPhones to be assembled at new plant in India's Karnataka state
US Treasuries inflows YTD make the strongest start since 2004 - BofA Flow Show
