Viacom Q1 Earnings in Line, Revenues Miss Estimates

Viacom Inc. (VIAB) declared first-quarter fiscal 2015 financial results wherein the bottom line was on par with the Zacks Consensus Estimate while the top line missed the same. Higher Affiliate Fees and Theatrical revenues have supported the quarter’s earnings performance.

Net income from continuing operations in the reported quarter was $500 million or $1.20 per share compared with $547 million or $1.20 in the prior-year quarter. Quarterly adjusted earnings per share of $1.29 were in line with the Zacks Consensus Estimate.

Total revenue in the quarter stood at $3,344 million, up 5% year over year but below the Zacks Consensus Estimate of $3,436 million. Quarterly operating income came in at $935 million, highlighting a decrease of 3% year over year. During the reported quarter, Viacom bought 10.2 million common shares for $750 million.

At the end of the first quarter, Viacom had $1,185 million of cash & cash equivalents and $13,146 million in outstanding debt on its balance sheet compared with $1,000 million and $12,751, respectively, at the end of fiscal 2014. Meanwhile, the debt-to-capitalization ratio stood at 0.79 against 0.77 at the end of fiscal 2014.

Media Networks Segment

Quarterly revenues of $2,654 million inched up 4% year over year, mainly boosted by higher affiliated fees. Quarterly operating profit came in at $1,094 million, down 1% year over year. Annually, domestic and worldwide affiliate fee revenues grew 8% and 6%, respectively. On the other hand, on a year-over-year basis, domestic advertising revenues fell 6% while worldwide advertising revenues improved 3%.

Filmed Entertainment Segment

Quarterly revenues spiked 6% year over year to $720 million, mainly driven by the successful movie releases. Quarterly operating loss stood at $64 million against $78 million in the prior-year quarter. On the other hand, Global Theatrical revenues increased 6% while Worldwide Home Entertainment revenues declined 16% year over year.

Our Take

We believe that Viacom is well positioned for long-term growth as it continues to benefit from its predominant cable network-based business model, strong affiliate fee revenue growth, increased number of share repurchase plans, multi-platform content, and its position as one of the fastest growing traditional ad media companies. Moreover, the recent acquisition of British public service broadcaster, Channel 5 Broadcasting Ltd., will continue to drive Viacom’s advertising revenues.

However, stiff competition from media companies like News Corp. (NWSA), CBS Corp. (CBS) and Time Warner Inc. (TWX) along with spiraling programming expenses may act as headwinds going forward.

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