Gains from split-off of Outdoor unit, healthy advertising revenues from Thursday night NFL and constantly rising retransmission revenues along with content monetization efforts helped CBS Corporation (CBS) come up with better-than-expected third quarter 2014 results. Adjusted earnings per share from continuing operations came in at 74 cents, rising 6% year over year and topping the Zacks Consensus Estimate by a penny.
Though aggressive share buyback activity provided ample cushion to the bottom line, it is to be noted that unfavorable forex fluctuations hurt earnings per share by 4 cents. Additionally, higher programming expenditure proved another dampener in the quarter. As a result, stock movement was mere 2.4% in the after-hours trading.
Some other highlights include the launch of a streaming news service, CBS N, right after CBS All Access was unveiled last month. CBS is also partnering with Sony Corp. (SNE) to bring some of its content on the latter’s streaming services.
Back to results, including, one-time items, earnings per share from continuing operations came in at 13 cents as against 70 cents in the prior-year quarter.
Total revenue grew 2% to $3,367 million and was ahead of the Zacks Consensus Estimate of $3,329 million driven by 1.6% growth in advertising to $1,548 million and 4.3% rise in content licensing revenues to $1,141 million.
However, adjusted operating income before depreciation and amortization (OIBDA) decreased 2.4% to $814 million as the company faced higher costs mainly on account of new NFL contracts.
Segment Details
Entertainment revenues grew 1% to $1,911 million owing to increases in television licensing, affiliate and subscription fees. However, the segment’s OIBDA fell 22.3% to $335 million due to increased investment in television content.
Cable Networks’ revenues increased 5% to $624 million due to higher licensing and affiliate fees. Subsequently, the segment’s OIBDA also increased 4% to $272 million.
Publishing revenues fell 11.2% to $199 million whereas the segment’s OIBDA was flat at $43 million. Lack of popular titles in the quarter as against extremely popular titles like Doctor Sleep by Stephen King and Si-Cology by Si Robertson in the prior-year quarter caused a sharp drop in revenues. However, lower inventory offset the revenue decline leading to a flat OIBDA.
Local Broadcasting revenues were up 6% to $680 million in the quarter on higher political advertising given mid-term elections. The segment’s OIBDA grew 18% to $214 million due to reduced programming expenses. CBS Television Stations’ and CBS Radio’s revenues grew 10% and 2%, respectively.
Other Financial Details
CBS Corp. ended the quarter with cash and cash equivalents of $178 million, long-term debt of $6,508 million, and shareholder equity of $7,526 million. For the first nine months, the company generated net cash flow from operations of $288 million and incurred capital expenditures of $112 million. Free cash outflow of $124 million was generated during the period, substantially low from the year-ago quarter, on account of higher costs and payments related to NFL contacts and absence of Super Bowl Broadcast this year.
In the quarter, CBS Corp. repurchased 6.9 million shares for $400 million bringing the count to 90.1 million as of Sep 30, 2014.
Our Take
CBS Corp., which competes with The Walt Disney Company (DIS), is focused on lowering its dependency on conventional advertising, which is commendable since it is highly susceptible to economic headwinds. Separation of CBS Outdoor Americas Inc. (CBSO) was a step in that direction. Also, the company is focusing on enhancing its non-advertising revenue streams, like reverse compensation from affiliates, content monetization, digital distribution, syndication sales and retransmission fees, to boost its revenues.
These efforts have resulted in contribution from advertising to the total revenues coming down to less than 50% in the quarter.
CBS Corp. continues to expect retransmission fees to hit the $2 billion mark in 2020. Currently, it expects retransmission fees to reach $1 billion by 2017. Significant lucrative deals in the pipeline make the company positive about achieving its target.
Though CBS Corp. is currently a Zacks Rank #4 (Sell) stock, we expect an upward revision soon.
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