Viacom Inc. (VIA)

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Viacom Inc. (VIA)

F1Q2013 Earnings Conference Call

January 31, 2013; 08:30 a.m. ET


Sumner Redstone - Chairman

Philippe Dauman - President & Chief Executive Officer

Tom Dooley - Chief Operating Officer

Wade Davis - Chief Financial Officer

Jim Bombassei - Senior Vice President of Investor Relations


Michael Nathanson - Nomura

Megan Durkin - Deutsche Bank

Alexia Quadrani - J.P. Morgan

Brian Wieser - Pivotal Research

Richard Greenfield - BTIG

David Bank - RBC

David Miller - B. Riley Caris

Vasily Karasyov - Susquehanna Financial Group

Michael Morris - Davenport & Co.

James Dix - Wedbush



Good day everyone and welcome to the Viacom, fiscal first quarter earnings release teleconference. Today’s call is being recorded.

At this time I would like to turn the call over to the Senior Vice President of Investor Relations, Mr. Jim Bombassei. Please go ahead, sir.

Jim Bombassei

Good morning everyone and thank you for taking the time to join us for our earnings call for the quarter ended December 31. Joining me for today’s discussion are Sumner Redstone our Chairman; Philippe Dauman, our President and CEO; Tom Dooley, our Chief Operating Officer; and Wade Davis, our Chief Financial Officer.

Please note that in addition to our press release, we have slides and trending schedules containing supplemental information available on our website. I want to refer you to page number two in the web presentation and remind you that certain statements made on this call are forward-looking statements that involve risks and uncertainties.

These risks and uncertainties are discussed in more detail in our filings with the SEC. Reconciliations for non-GAAP financial information discussed on this call can be found in our earnings release or on our website.

Now, I’ll turn the call over to Sumner.

Sumner Redstone

Thank you Jim. Good morning everyone. It is once again my great pleasure to join Philippe, Tom and the rest of the team to discuss Viacom’s quarterly results and our exciting future.

The media business is evolving at an accelerating rate and Viacom is not only adapting to the changes, but in fact we are leading the way. Our investment in new programs that thrives on multiple screens is a driving force behind our extraordinary ability to great television shows, blockbuster movies with worldwide appeal. In fact Viacom’s part in resolving this distributed in innovative ways that were inconceivable only a few years ago.

Our management team continues to deliver on right on its commitment to continuously improve, relentlessly innovate and steadily return capital to shareholders. I have unwavering confidence in my good friend Philippe and his leadership of Viacom’s executive and creative team. Together we will continue to build Viacom’s core business and drive even greater value.

And now it’s my pleasure to turn this call over to the man who is actually the wisest man I have ever met in my life, my good friend, Philippe.

Philippe Dauman

Thank you Sumner my friend and good morning everyone. Glad you could join us today to discuss the first quarter of Viacom’s 2013 fiscal year.

As expected, our results for the December quarter were impacted by short-term challenges. Most notably fewer home entertainment releases and a less favorable mix of theatrical releases from our film entertainment segment and the lingering effects of laden softness at rapidly improving Nickelodeon, which masked a solid performance by our media networks overall.

We are achieving sequential ratings improvement in most of our key brands and excluding our Nickelodeon group, our networks return to positive ad revenue growth in the quarter.

The signs of raised momentum we saw during the quarter confirm our view that our significant and sustained investment in fresh, original content is working and will continue to drive future ratings growth and revenue improvement and we continue to be excited about the rich and diverse slate that Paramount Pictures brings to theaters this year, including the just released Hansel & Gretel: Witch Hunters and the upcoming G.I. Joe: Retaliation and Star Trek: Into Darkness.

As always, we’ll move our content and build our brands across markets and screens around the world. As we do, we’ll continue to deliver significant value for our shareholders.

Tom and Wade will go into greater detail in a moment, but let me quickly recap Viacom’s financial results for the December quarter. Revenues declined 16% to $3.31 billion. Operating income decreased 22% to $797 million and adjusted net earnings from continuing operations attributable to Viacom declined to $461 million. Adjusted diluted earnings per share from continuing operations came in at $0.91 per diluted share.

We continue to generate significant free cash flow, which we use to repurchase $700 million in stock in the quarter under our $10 billion share repurchase program. We expect to repurchase an additional $700 million in stock in this quarter.

In our Media Networks segment, advertising revenue was down 6%, due entirely to the shortfall at the Nickelodeon group. Excluding the Nickelodeon Networks, our domestic networks returned to positive ad sales growth in the quarter and Nickelodeon’s ratings improvement will help us significantly improve our overall ad sales performance going forward.

Affiliate revenue grew 3% in the first fiscal quarter. While our core domestic affiliate revenue grew in the low double-digit range, the overall affiliate line was moderated by the timing of content availability for digital distribution partners in the quarter. For the full year we expect 10% total domestic affiliate growth.

We continue to see strong demand for our branded content from traditional and digital distribution partners alike. Our focus remains on investing to bring more and more new, original content to air. Although our network portfolio courts a more varied cross-section of demos than any other, the consistent refrain we hear from our audiences is that they want new shows and new episodes in faster cycles, and so we are delivering at all our networks, accelerating development timelines and production to accelerate our ratings turnaround.

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