CBS Corporation’s (CBS) fourth-quarter 2012 earnings of 64 cents a share missed the Zacks Consensus Estimate of 70 cents but jumped 14.3% from 56 cents earned in the year-ago quarter. Higher advertising revenue and rise in affiliate and subscription fees were the driving factors. Lower interest expense and share repurchase activities also provided cushion to the bottom line.
Including one-time items, quarterly earnings came in at 60 cents a share, up 9.1% from 55 cents delivered in the prior-year quarter.
Total revenue of $3,698 million for the quarter fell short of the Zacks Consensus Estimate of $3,946 million but increased 2.4% from the prior-year quarter, reflecting 3.4% and 8.6% growth in advertising revenue, and affiliate and subscription fees, respectively, partially offset by 6.5% decline in content licensing and distribution revenue.
We believe this Zacks Rank #2 (Buy) stock remains well positioned to drive growth in the coming quarters through its strategic initiatives focused on increasing subscription based revenue channels. The company remains optimistic and expects growth momentum to continue in 2013 based on reverse compensation from affiliates, strong demand of its content, digital distribution, syndication sales and retransmission consent. CBS is eyeing around $1 billion in retransmission and reverse compensation revenues by 2017. The company also remains positive about CBS Television Network being the growth driver.
Streaming nowadays is becoming a significant source of revenue generation. CBS recently entered into a deal with Amazon.com Inc. (AMZN) that extends the latter’s archive of television shows and films currently available on its streaming video site, Amazon Prime Instant Video. We believe the deal is the latest effort by Amazon to strengthen its position versus Netflix, Inc. (NFLX), the leading online subscription service video in the United States.
In a strategic move to unlock the value of the assets, CBS decided to convert its CBS Outdoor operations in North America and South America into a real estate investment trust (“REIT”) and divest its Outdoor businesses in Europe and Asia. It seems that CBS Corporation’s step is in line with billboard operator, Lamar Advertising Co.’s (LAMR) intention of converting into a REIT, announced last August.
We believe CBS Corporation’s decision regarding Outdoor business would augur well for the company, as it would lower its dependency on advertising, which remains vulnerable to the economy’s health.
Coming to the results, adjusted operating income before depreciation and amortization (OIBDA) increased 6.4% to $866 million, whereas adjusted OIBDA margin expanded approximately 90 basis points to 23.4%.
Segment Details
Content Group revenue, comprising Entertainment, Cable Networks and Publishing, inched up 0.9% to $2,642 million.
Entertainment revenue edged down 0.3% to $1,989 million from the year-ago quarter, as increase in advertising revenue and rise in network affiliation fees were offset by fall in television license fees. However, segment’s OIBDA jumped 3% to $328 million due to favorable revenue mix.
Growth in subscriptions rates at Showtime Networks, CBS Sports Network and Smithsonian Networks and licensing of Showtime original series supplemented Cable Networks revenue to mark an elevation of 10.9% to $438 million. Moreover, increased affiliate revenues helped segment’s OIBDA to increase by 6% to $185 million, partly offset by increase in costs.
Publishing revenue declined 6.1% to $215 million, as lower sales of print books more than offset the increased sales of digital books. Digital book sales surged 24% during the quarter. However, high margin digital book sales led to a 10.7% increase in the segment’s OIBDA to $31 million.
Local Group revenue, including Local Broadcasting and Outdoor, came in at $1,127 million, up 6% from the prior-year quarter.
Local Broadcasting revenue climbed 9.2% to $787 million from the year-ago quarter on the back of increased political advertising as well as higher retransmission revenue. CBS Television Stations revenue jumped 17%, whereas CBS Radio revenue inched up 1% during the quarter. The segments’ OIBDA surged 22% to $325 million due to rise in revenue. Revenue across television stations is seeing mid-single digit growth, whereas across radio it is expected to remain flat during the first quarter of 2013.
Outdoor Americas revenue dropped marginally by 0.6% to $340 million attributable to fall in revenue in Canada as the Toronto transit contract was not renewed. Revenue in the United States rose 3%, reflecting growth across U.S. billboards and displays businesses. Outdoor Americas’ OIBDA tumbled 13% to $94 million.
Other Financial Details
CBS Corporation ended the quarter with cash and cash equivalents of $708 million, total long-term debt of $5,922 million, and shareholders’ equity of $10,213 million. The company generated cash flow from operations of $335 million and incurred capital expenditures of $115 million. Free cash flow of $199 million was generated during the quarter.
During the quarter, the company bought back 8.5 million shares at an aggregate price of $299 million. Since the commencement of the share buyback program in Jan 2011 through Dec 31, 2012, CBS Corporation has bought back 77.7 million shares at a price of approximately $28 per share, totaling $2.19 billion. The company still has share repurchase authorization of $2.51 billion at its disposal. Management also announced an additional $1 billion share buyback plan.
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