Viacom Misses on Q3 Earnings as Theater Revenues Decline

Viacom Inc. (VIAB) declared third-quarter of fiscal 2014 financial results wherein both the top and the bottom line missed the corresponding Zacks Consensus Estimate. Sharp decline in Theatrical revenues has impacted the recent quarter results.

Net income from continuing operations in the reported quarter was $611 million or $1.40 per share compared with $647 million or $1.32 per share in the prior-year quarter. Quarterly adjusted earnings per share of $1.42 missed the Zacks Consensus Estimate of $1.44.

Total revenue in the reported quarter stood at $3,421 million, down 7.4% year over year and also fell short of the Zacks Consensus Estimate of $3,583 million. Quarterly operating income came in at $1,086 million, flat year over year. During the reported quarter, Viacom bought 10 million common shares for $850 million.

At the end of the third quarter, Viacom had $1,585 million in cash & cash equivalent and $12,758 million in outstanding debt on its balance sheet compared with $2,403 million and $11,867, respectively, at the end of fiscal 2013. Meanwhile, the debt-to-capitalization ratio stood at 0.75 against 0.69 at the end of fiscal 2013.

Media Networks Segment

Quarterly revenues of $2,591 million inched up 1% year over year, mainly triggered by better advertising revenues. Quarterly operating profit came in at $1,086 million, almost flat year over year. Worldwide affiliate fee revenues were also flat year over year. On a year-over-year basis, domestic and worldwide advertising revenues surged 1% and 2%, respectively.

Filmed Entertainment Segment

Quarterly revenues fell a sharp 26% year over year to $856 million, mainly affected by lower carryover revenues from film releases in the previous-year quarter. Quarterly operating income stood at $52 million, highlighting an astounding increase of 333% year over year. On the other hand, Global Theatrical revenues decreased 43% while Worldwide Home Entertainment revenues declined 24% year over year.

Our Take

We believe that Viacom is well positioned for long-term growth as it continues to benefit from its predominantly cable networks-based business model, strong affiliate fee revenue growth, increased number of share repurchase plans, multi-platform content, and is one of the fastest growing traditional ad media.

However, stiff competition from other media companies like News Corp. (NWSA), CBS Corp. (CBS) and Time Warner Inc. (TWX) along with mounting debt may act as headwinds for the stock, going forward.

Currently, Viacom has a Zacks Rank #4 (Sell).