Viacom Inc.(VIA.B) declared blockbuster second quarter 2011 financial results, where both earnings per share (EPS) and revenue exceeded the Zacks Consensus Estimate. The solid performance was mainly attributable to higher theatrical and home entertainment sales coupled with solid growth in affiliate fees and advertising sales.
Second Quarter Highlights
Quarterly total revenue was $3,267 million, up 20% year over year and was well ahead of the Zacks Consensus Estimate of $2,984 million. Significant increase in the top line was due to improved performance in the Media Networks and Filmed Entertainment segments along with growing profit margins.
Quarterly net income from continuing operations was $376 million or 63 cents per share compared with a net income of $255 million or 42 cents per share in the prior-year quarter. Adjusted earnings per share (EPS), excluding debt extinguishment costs, were 72 cents, which comprehensively beat the Zacks Consensus Estimate of 61 cents in the reported quarter.
Agreements of Analysts
Of the 11 analysts covering the stock in the last 7 days, none revised their estimates for the third quarter as well as for the fourth of 2011.
For fiscal 2011, out of the 11 analysts, none increased or decreased their estimates. Similarly, for 2012, out of the 10 analysts, none revised their estimates.
Currently, the Zacks Consensus EPS Estimate for the third quarter of 2011 is pegged at 84 cents. The projected annual growth rate is 23.93%. Similarly, for the fourth quarter, the current Zacks Consensus EPS Estimate of 99 cents indicates a gain of 31.39% year over year.
Magnitude of Estimate Revisions
For the third and fourth quarter of 2011, during the last 7 days, the current estimate was in line with the Zacks Consensus Estimate of 84 cents and 99 cents, respectively. Likewise, for fiscal 2011 and 2012, the current estimate was in line with the Zacks Consensus Estimate of $3.48 and $3.98 per share, respectively.
Earning Surprises
With respect to earnings surprises, the company’s fairly good track record is expected to persist in the coming quarters. Viacom produced an earnings surprise of 12 cents or 20.0% in the last quarter. The current Zacks Consensus Estimate for the ongoing quarter reflects a negative 2.38% earning surprise but the upcoming quarter contains 4.04% upside potential (essentially a proxy for future earning surprises) while for fiscal 2011 and fiscal 2012, the Zacks Consensus Estimates upside potentials are 3.74% and 4.02%, respectively.
Our Recommendation
Viacom is well positioned for long-term growth as it continues to benefit from its predominately cable networks-based business model, strong affiliate fee revenue growth, global brands, multi-platform content, and is one of the fastest growing traditional advertisement media. Moreover, hit movie franchisees like Kung Fu Panda 2 and Transformers: Dark of the Moon, which are slated to release this summer will drive box-office success going forward.
However, stiff competitions fromother media companies like News Corp. (NWSA) and Time Warner Inc. (TWX) along with slow economic recovery may act as headwinds for the stock going forward.
We, thus, maintain our long-term Neutral recommendation for Viacom. Currently, Viacom has a Zacks#2 Rank, implying a short-term Buy rating on the stock.
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