CBS CorporationCBS ended 2015 on a spectacular note with both the top and bottom lines surpassing estimates and improving year over year in the fourth quarter. This also enabled the company to keep its positive earnings streak alive through 2015.
The company's fourth-quarter 2015 earnings per share surged nearly 19% year over year to 92 cents that came a penny ahead of the Zacks Consensus Estimate. Results were backed by top-line growth, along with share repurchase activity.
Total revenue of this Zacks Rank #3 (Hold) company rose 6% to $3,910 million, cruising ahead of the Zacks Consensus Estimate of $3,782 million. The top line was fuelled by a 16% improvement in content licensing and distribution revenues, 13% growth in affiliate and subscription fees, and a 1% rise in advertising revenues.
While affiliate and subscription fees gained from enhancement in retransmission revenues along with fees from CBS Television Network affiliated stations, the rise in advertising revenues was mainly driven by better network advertising.
Adjusted operating income increased 6% to $747 million on the back of revenue growth. However, adjusted operating margin came in at 19.1% compared with 19.2% in the prior-year quarter.
Segment wise, Entertainment revenue increased 9% to $2,460 million. Network advertising revenue rose 8% on the back of a solid scatter market. Also, affiliate and subscription fees soared 45%, while a rise in international television licensing revenues drove content licensing and distribution revenues. Revenue growth also led the segment's operating income to jump 37.2% to $347 million.
Cable Networks' revenue improved 13% to $562 million, benefitting from higher revenues attributable to global licensing of the Showtime original series. Cable Networks' operating income fell 5.4% to $228 million, primarily due to the absence of licensing of high-margin titles, which was present in the year-ago period.
Publishing revenue grew 8% to $233 million, mainly attributable to an increase in sales of print books. Digital revenue now accounts for 21% of Publishing's total revenue. The segment's best-selling books for the quarter included The Bazaar of Bad Dreams by Stephen King and Crippled America by Donald J. Trump. Operating income at this segment shot up 36% to $34 million.
Local Broadcasting revenue declined 8.4% to $719 million in the quarter owing to lower advertising and political revenues, partly compensated by an increase in affiliate and subscription fees. CBS Television Stations' revenue fell 11% while CBS Radio's revenue dropped 5%. The segment's operating income plunged 20.5% to $232 million due to lower revenue.
CBS Corp. ended the quarter with cash and cash equivalents of $323 million, long-term debt of $8,226 million, and shareholders' equity of $5,563 million. In 2015, the company generated cash flow from operations of $1,419 million (from continuing operations) and incurred capital expenditures of $193 million. Free cash flow generated during the year was roughly $1.23 billion, up from $1.0 billion recorded a year ago.
During the quarter under review, CBS Corp. bought back 10.6 million shares for $500 million. During 2015, the company repurchased 51.7 million shares for $2.8 billion, leaving shares worth $2.0 billion remaining under the existing authorization as of the year end.
CBS highlighted that retransmission consent and reverse compensation are expected to exceed the $2-billion mark in 2020, and is on track to hit $1 billion in 2016, a year earlier than anticipated. Moreover, with the launch of Showtime's streaming service, online news channel, CBSN, and over-the-top service, CBS All Access, the company has been generating incremental revenue.
Given these factors, together with the timing of Super Bowl 50 in the first quarter and an increase in political spending, the company anticipates 2016 to be a solid year for advertising.
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