WRAPUP 2-Viacom, CBS warn ad market sinking results

* Viacom Q3 EPS 53-55 cents, misses estimates of 61 cents

* CBS sees $14 bln non-cash impairment charge in Q3

* Media shares fall sharply (Adds comments from investor)

By Paul Thomasch

NEW YORK, Oct 10 (Reuters) - Viacom Inc (VIAb.N: Quote, Profile, Research, Stock Buzz) and CBS Corp (CBS.N: Quote, Profile, Research, Stock Buzz) warned that quickly deteriorating advertising sales would slash their profits, signaling that the financial crisis is hitting the media industry harder than previously thought.

Shares of Viacom and CBS plunged roughly 20 percent in their worst single-day fall since they split into separate companies in late 2005. Both are still controlled by Sumner Redstone.

Friday's warnings battered other media stocks as well, and raised concerns about the industry's ability to weather the turmoil. Investors said Time Warner Inc (TWX.N: Quote, Profile, Research, Stock Buzz) and News Corp (NWSa.N: Quote, Profile, Research, Stock Buzz) could issue similar warnings about advertising weakness.

"Given the rapid softening of the economy and the uncertainty this creates in forecasting advertising growth, we are taking the prudent step of moderating our near-term targets," Viacom Chief Executive Officer Philippe Dauman said.

Viacom, owner of MTV Networks and the Paramount film studio, forecast its third-quarter earnings per share at 53 cents to 55 cents, at least 10 percent short of analyst forecasts, as worldwide advertising revenue dipped about 2 percent. (Click on [ID:nN102546] for more on Viacom)

"All media are going to be lowering guidance," said Larry Haverty, portfolio manager of Gabelli Global Multimedia Trust. "There is no chance that a company won't be lowering guidance. The reality of it is I applaud Viacom for being the first but they won't be the last."

Haverty added that spending on local advertising could drop a total of 20 percent in the fourth quarter, with autos, financial and retail leading the way down. "That would be a very unprecedented downturn in local advertising," he said.

CBS, whose TV network is home to shows like "Survivor" and "CSI," said it expects to take a $14 billion non-cash charge in the third quarter because current economic conditions have undercut the value of investments.

What's more, CBS said it expected 2008 adjusted operating income to drop in the mid-teens on a percentage basis from 2007 -- a dramatic revision from this summer, when it forecast "comparable" operating income for the two years. (Click on [ID:nWNAB6444] for more on CBS)

"The continued economic slowdown in the United States has adversely affected advertising revenues across the company's businesses, primarily at the local level, and the effects of the current financial crisis are likely to cause further declines in advertising spending," CBS said.

Just a month ago, CBS CEO Les Moonves said the company was seeing "the beginning of a comeback" in some local advertising categories.

But the crumbling of the economic picture in recent weeks has media companies and analysts scrambling to revise their outlook for advertising this year and next.  Continued...