Warner Music Group reported its Q1 earnings today. Revenues were up 7% year over year, but operating income was down 45% and EPS was -$0.11.

What is one to think about these most recent earnings? It depends. You could view it as a solid performance in the industry's most difficult stretch in almost 30 years. Recorded music and publishing revenues were both up. Compared to its peer group, WMG is doing just fine ("given industry doldrums this is pretty good," said Silicon Alley Insider of recorded music revenue) and some like to assess performance relative to a company's competitors. On the other hand, you could look at the lower operating income, the negative cash flow and general gloomy industry outlook and have a different opinion. WMG, like the other majors, requires a lot of patience right now. "Today’s recorded music business is challenged and it may take some time before it returns to growth," said CFO Michael Fleisher.

The market was not very optimistic. Investors probably felt last week's run up, caused by a Merrill Lynch "buy" rating, was too much. (Update: Or, as one knowledgeable reader said, information could have leaked that ran up the price.) The stock dropped 19% to $7.06 this morning and now sits at $7.16. (around where it was five days ago).

Silicon Alley Insider and paidContent have very good recaps of the conference call (with tornado sirens going off until 2:30am this morning, I opted to sleep in).

The company declared a normal dividend of $0.13 per share. Pali Research's Richard Greenfield had warned that a dividend cut was likely.

Final note: Contrary to my opinions expressed here, WMG does not think the 2008 release schedule will be any better or worse than that of 2007. Hard to believe, but it may be true.

(Full disclosure: I was employed by WMG last summer)