Keeping its earning streak alive in the third quarter of 2015, CBS Corporation CBS reported earnings per share of 88 cents that beat the Zacks Consensus Estimate of 81 cents on the back of strength witnessed across affiliates and subscription fees. The bottom line of this diversified media conglomerate also benefited from share repurchase activity that helped register 18.9% growth from 74 cents earned in the year-ago quarter.
On the other hand, total revenue of this Zacks Rank #4 (Sell) company fell 3.3% to $3,257 million and also missed the Zacks Consensus Estimate of $3,274 million. The top line was negatively impacted by timing of television licensing sales, nonrenewal of sports contracts along with fall in pay-per view revenues.
Adjusted operating income increased 0.9% to $753 million due to growth in high-margin affiliate as well as subscription fee. Adjusted operating margin came in at 23.1% in comparison to 22.2% in the prior-year quarter.
Segment wise, Entertainment revenue increased 1.1% to $1,932 million. Advertising revenue fell 4.3% due to the timing of a few sporting events on the CBS Television Network. Affiliate and subscription fees surged 55%, reflecting an increase in rates.
The segment’s operating income jumped 12.3% to $339 million primarily driven by growth in higher margin revenues. This, however, was somewhat offset by increased investment in programming as well as digital distribution initiatives.
Cable Networks’ revenue declined 15.7% to $526 million. Cable Networks’ operating income fell 7.5% to $246 million primarily due to decline in revenue.
Publishing revenue inched up 2% to $203 million due to increase in sales of titles like The Survivor by Vince Flynn and Kyle Mills and Plunder and Deceit by Mark R. Levin, along with unrelenting accomplishment of the Pulitzer Prize-winning 2014 release, All the Light We Cannot See by Anthony Doerr. Digital revenue now accounts for 25% of Publishing's total revenue. Operating income at this segment grew 2.4% to $43 million.
Local Broadcasting revenue dropped 6.2% to $680 million in the quarter owing to lower advertising and political revenues. CBS Television Stations’ revenue fell 7% while CBS Radio’s revenue declined 6%. The segment’s operating income fell 9.4% to $174 million due to lower revenue.
Other Financial Details
CBS Corp. ended the quarter with cash and cash equivalents of $133 million, long-term debt of $8,476 million, and shareholders’ equity of $5,879 million. In the quarter, the company generated negative cash flow from operations of $240 million and incurred capital expenditures of $58 million. Free cash flow generated during the quarter was negative $289 million, substantially down from negative $400 million in the year-ago period.
During the quarter under review, CBS Corp. bought back 10.6 million shares for $500 million. Since the beginning of 2015 through Sep 30, 2015, the company has repurchased 41 million shares for $2.3 billion.
Bottom Line
The company anticipates crossing the $2 billion mark in revenues from retransmission consent and reverse compensation by 2020. Several strategic deals with Sinclair, AT&T, Nexstar and others have favorably positioned the company to meet the retransmission targets much ahead of schedule. Moreover, with the launch of Showtime's streaming service, online news channel, CBSN, and over-the-top service, CBS All Access, the company is generating incremental revenue.
Favorably Ranked Stocks
Some better-ranked stocks include AMC Networks Inc. AMCX, Gray Television, Inc. GTN and Sinclair Broadcast Group, Inc. SBGI. All these stocks sport a Zacks Rank #1 (Strong Buy).
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