Viacom Inc's profit surpassed expectations thanks to a round of cost-cutting and brisk sales of DVDs like Star Trek and Transformers 2 -- but the results were marred by signs that advertising has yet to improve.

Viacom, whose shares rose about 1 percent after the report, is the latest media company to report better-than-expected results for the quarter, joining rivals Time Warner Inc, News Corp and Walt Disney Co.

Excluding special items, it earned $1.09 a share, well ahead of analyst forecasts of 88 cents a share, in a quarter that was highlighted by the cost cutting it has undertaken and the resurgence of its film studio.

While revenue from the box office declined, the division's DVD sales jumped with the release of blockbuster hits Transformers 2: Revenge of the Fallen, Star Trek and G.I. Joe: The Rise of Cobra.

Viacom's results did show some weak spots, however. Namely, revenue declined 3 percent to $4.1 billion, which was just shy of the $4.2 billion analysts polled by Thomson Reuters I/B/E/S had forecast.

Among the problems, advertising dropped by 3 percent worldwide and 4 percent in the United States, reflecting struggles selling commercial time across a cable TV business that includes MTV, Comedy Central and BET.

Viacom is not as dependent on advertising as some media companies -- such as corporate sibling CBS Corp -- but nonetheless gets about 30 percent of annual revenue from ads, so the slump has taken a toll.

Chief Executive Philippe Dauman, on a conference call, said the ad market had started to show better signs in the first quarter, but downplayed any hopes of a speedy recovery.

We are not out of the economic woods yet, particularly in certain international markets where the recovery appears to be lagging the U.S., Dauman said. But we do see growing signs of strength as more advertisers return to the market and new strong categories of advertising emerge, notably in several increasingly competitive sectors of the technology industry.

He said that so far in the first quarter, advertising had improved from the fourth quarter. He declined, however, to say how much ad revenue had improved, or whether it had turned positive from a year ago.

Overall, Viacom posted net earnings of $694 million, or $1.14 a share, up from the $173 million, or 28 cents a share, a year earlier.

Shares were up 30 cents at $28.85 on the New York Stock Exchange.

(Reporting by Paul Thomasch; Editing by Derek Caney and Gunna Dickson)

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