Higher content licensing and distribution revenues facilitated
CBS Corporation
(
CBS
) to post better-than-ever first-quarter 2012 results. The
quarterly earnings of 54 cents a share were way ahead of the Zacks
Consensus Estimate of 44 cents and surged 86% from 29 cents earned
in the year-ago quarter.
Key Numbers
Revenues jumped 12% year over year to $3,924 million. The growth
was due to a rise of 39% in content licensing and distribution
revenues (to $1,017 million) along with a 5% increase in
advertising revenues (to $2,398 million). Moreover, affiliate and
subscription fees rose 7% to $455 million. Total revenues also
exceeded the Zacks Consensus Estimate of $3,780 million.
Adjusted operating income before depreciation and amortization
(OIBDA) increased 36% to $784 million. Increased revenues led OIBDA
margin to expand 400 basis points year over year to 20% during the
reported quarter.
Increases in high margin revenue streams facilitated adjusted
operating income to increase 49% year over year to $653 million,
whereas operating margin expanded 400 basis points year over year
to 16%.
Segment Details:
Content Group
revenues, comprising Entertainment, Cable Networks, and Publishing,
increased 16% to $2,946 million, reflecting strong performance
across all divisions.
Entertainment
revenues increased 16% to $2,318 million from the year-ago quarter,
reflecting higher advertising and retransmission revenues and
licensing agreement for digital streaming. OIBDA at the segment
soared 53% to $411 million.
Growth in subscriptions rate at Showtime Networks and
Smithsonian Networks along with a rise in digital streaming for
Showtime original series supplemented
Cable Networks
revenues to increase 15% to $452 million. Cable Networks OIBDA
increased 37% to $209 million.
Publishing
revenues increased 14% to $176 million, reflecting increased sales
of print books and significant rise in the sales of more profitable
digital content. Publishing OIBDA jumped 43% to $10 million during
the quarter.
Local Group
revenues, including Local Broadcasting and Outdoor, remained
approximately flat at $1, 038 million.
Local Broadcasting
revenues were flat at $622 million from the year-ago quarter as
higher retransmission revenues were offset by lower advertising
revenues. The segments' adjusted OIBDA inched up 1% to $171
million.
Outdoor
revenues crept up 1% to $416 million, reflecting improvement in
outdoor advertising in Americas. Outdoor OIBDA grew 8% to $53
million.
Fundamentals Driving Growth
CBS remains well positioned to drive revenue growth in the
coming quarters through its strategic initiatives and operating
efficiencies. Management remains optimistic and expects growth
momentum to continue in fiscal 2012 based on reverse compensation
from affiliates, strong demand of its content and streaming,
retransmission consent, and political advertising.
The retransmission and affiliate fees generated from CBS's cable
and satellite partners for retransmitting broadcast programming
have been another source of revenues. Moreover, revenues from
retransmission continue to grow at a brisk pace. Further, the
company is increasingly getting reverse compensation from its
affiliates, marking a new source of revenues. The company also
expects reverse compensation to expand in the coming quarters.
CBS secured deals worth hundreds of million, including a
two-year deal with
Netflix Inc
(
NFLX
), and also signed a nonexclusive licensing agreement with
Amazon. Com. Inc
(
AMZN
). These measures facilitated CBS to generate revenues from shows
that have already been broadcasted on TV years ago and facilitated
the company in capitalizing its content.
Moreover, the company's 14-year contract with Turner
Broadcasting to divide rights fees for the NCAA tournament was a
part of an effort to reduce costs as well as generate profits.
CBS entered into a couple of long-term streaming deals for CW
content with Netflix and Hulu, which will boost its studio bottom
line results, while providing the company the flexibility to sell
its content anywhere.
The company extended its broadcast rights deal with the National
Football League (NFL) for nine more years. The newly announced deal
will extend CBS Corporation's existing deal to 2022. The current
deal was scheduled to end in 2013.
The company through one of its divisions, CBS Interactive,
entered into a partnership with TwitchTV, a leading video game
broadcasting network and Major League Gaming, the world's most
renowned eSports league. The company's expansion into the fastest
growing live gaming and eSports market is likely to enhance its
profitability.
Further, CBS Corporation's long-term agreements with the NFL,
the NCAA, the SEC and the Grammy's will generate stream of positive
cash flows for the company in the long run.
Other Financial Details
CBS Corporation ended the quarter with cash and cash equivalents
of $794 million, long-term debt of $5,902 million, and
shareholders' equity of $10,004 million. The company generated free
cash flows of $607 million during the quarter.
Moreover, healthy results and strong cash flows helped the
company to enhance shareholders value through share repurchases.
During the quarter, the company repurchased 9 million shares worth
$269 million.
In a strategic move to reduce interest outflow, CBS Corporation
refinanced its debt during the quarter. The company announced the
offering and redemption of debt, simultaneously. The company came
up with a new debt offering of $700 million priced at 3.375% due
2022 and subsequently declared the redemption of its $700 million
outstanding 6.75% debt due March 27, 2056.
Currently, we have a long-term 'Outperform' rating on the stock.
Moreover, CBS Corp. holds a Zacks #2 Rank, which translates into a
short-term 'Buy' rating.
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