Universal Music Group Earnings Drop 5.5% in Second Quarter -- An Improvement Over First Quarter and Last Year

The U.S. recorded music rebound and the LimeWire settlement helped Universal Music Group to an improved second quarter after a weaker first quarter of 2011. Revenues dropped 2.9% to €982 million ($1.42 billion, up 0.6% at constant currency, which removes the impact of currency fluctuations) and earnings before income taxes and amortization (EBITA) declined 5.5% to €86 million (down 3.5% at constant currency).

The quarter was an improvement from last year - with two asterisks. In last year's second quarter, UMG revenue was up 2.8% (down 3% at constant currency) but EBITA was down 9.9% (down 17.3% at constant currency). Vivendi claims the recent quarter's EBITA would have been up 7.7% at constant currency if not for restructuring charges.

The LimeWire settlement helped a bit. The company did not disclose its share of record labels' May settlement with the P2P company, but Warner Music Group previously disclosed its share of the settlement was $12 million. If the $105 million settlement was divvied up according to market share, UMG would have received substantially more than WMG. Removing just $12 million (about 8.3 million) from UMG's second-quarter EBITA would turn a 5.5% deficit into a 14.6% deficit.

The positive trend can be seen in first-half numbers, too. Through the first six months of 2011, UMG revenues dropped 1.9% to €1.86 billion and EBITA dropped 17% to €132 million. Both are improvements over the first half of 2010 in which UMG posted a 5.4% decline in revenue (down 7.9% at constant currency) and a 24.6% decline in EBITA (down 28% at constant currency).

The earnings release cited strong sales by Lady Gaga, Jennifer Lopez and Rihanna. Like other companies, UMG got a boost in the U.S. from the recorded music turnaround in which album sales were up 1% and digital track sales were up 11% in the first six months.

Parent company Vivendi posted revenue of €14.25 million in the first half of the year, a 1.9% increase from 2010, and EBITA of €3.36 billion, up 3.7%. Video game company Activision Blizzard was a big contributor to the improvements, growing revenue 9% to €1.86 billion and EBITA 34.4% to €833 million.