Distribution Deals & Global Growth to Aid CBS Q3 Earnings

CBS CorporationCBS is slated to report third-quarter 2018 results on Nov 1.

In the last reported quarter, the company's adjusted earnings of $1.12 per share beat the Zacks Consensus Estimate by a penny and increased 8% year over year. It beat the consensus mark in the trailing four quarters, delivering an average positive surprise of 4.5%.

Revenues increased 6.4% from the year-ago quarter to $3.47 billion and surpassed the consensus mark of $3.46 billion.

The Zacks Consensus Estimate for third-quarter earnings and revenues is currently pegged at $1.22 and $3.24 billion, respectively.

Let's see how things are shaping up prior to this announcement.

CBS Diversifying Revenue Streams

CBS is diversifying its revenue streams through digital distribution deals and international expansion.

The company is slowly reducing its dependence on advertising revenues (38% of total revenues, in second-quarter 2018), which is vulnerable to fluctuations in local advertisers' spending.

Management noted that each month about 90% of the U.S. population watches its content on one or more platforms.

To cash in on this opportunity, CBS distributes its content to various cable and streaming service providers including Netflix NFLX , Amazon AMZN , Hulu and Alphabet's GOOGL YouTube. The deals are anticipated to aid affiliate and subscription fee growth in the to-be-reported quarter.

Moreover, CBS continues to negotiate deals with distributors at higher prices due to strong demand for its content. This is expected to boost retransmission and reverse compensation revenues for third-quarter 2018. Notably, in second-quarter 2018 the company renewed its agreement with Charter Communications, the third largest multichannel video programming distributor (MVPD).

CBS Corporation Price and EPS Surprise

CBS Corporation Price and EPS Surprise | CBS Corporation Quote

International Revenues to Boost Top Line

Higher international content licensing fees revenues is driving international sales on the back of CBS' premium content depicting demand for its content even in international markets.

Management noted that in the last reported quarter, the company signed licensing deals with international broadcasters for a series before it was even aired in the United States. On the back of such deals, content licensing, affiliate and subscription fees are expected to be higher, adding to the top line in third-quarter 2018.

Additionally, CBS' sustained focus on increasing subscription-based revenues is a positive. CBS All Access and Showtime OTT continue to gain subscribers steadily. Moreover, successful launch of All Access in Canada is expected to add to subscriber growth going forward.

Other streaming products such as Sports HQ and CBSN are generating more streams and adding daily users, which is likely to boost affiliate and subscription fees.

However, increasing shift in viewership toward digital alternatives from traditional TV platforms does not bode well for the company.

Additionally, currency fluctuations and cyclical nature of advertising and higher expenditure for original programming might prove to be drags.

CBS currently carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

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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 Nasdaq, Inc.

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

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