CBS Reports Solid 1Q - Analyst Blog

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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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: AMZN , CBS , NFLX

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