CBS Corporation’s (CBS) continued effective operating and cost-containment efforts helped post strong first-quarter 2011 results. The quarterly earnings of 29 cents a share beats the Zacks Consensus Estimate of 19 cents and surged approximately six times from 5 cents earned in the year-ago quarter.
Quarter Highlights
Sequentially, CBS has made a positive comeback in each quarter outshining its performances in the previous quarters. The company indicated that the outdoor advertising marketplace remained strong during the quarter. Management expects growth momentum to continue in fiscal 2011 and 2012.
Buoyed by better-than-expected results, rebounding advertisement market and surging free cash flow, the company doubled its quarterly dividend to 10 cents a share from 5 cents. The increased dividend will be paid on July 1, 2011to shareholders of record as of June 10, 2011.
Due to its exposure to publishing, radio and television broadcasting, and outdoor billboard businesses, CBS remains highly susceptible to the advertising market. To mitigate this, the company is striving to add diverse revenue streams to hedge against economic cycles.
CBS entered into a 14-year contract with Turner Broadcasting to divide rights fees for the NCAA tournament. The agreement was the part of an effort to reduce costs and helped CBS in generating profit in the first three months of the year.
The retransmission and affiliate fees generated from CBS’s cable and satellite partners for retransmitting broadcast programming have been another source of revenue. This is evident from the company’s 10-year programming deal with Comcast Corporation (CMCSA), the cable operator, whereby the latter will retransmit the signals of CBS television network, the Showtime Networks and CBS College Sports, across its various platforms, to meet consumers’ growing demand for TV, Video on Demand and online content.
Revenue from retransmission keeps growing at a brisk pace making management confident of achieving its goal of $250 million retransmission fees in fiscal 2012. Further, the company is increasingly getting reverse compensation from its affiliates marking a new source of revenue for it. The company also expects reverse compensation to expand in the coming years.
Behind the Headline
Revenue contracted marginally by 0.6% to $3,510 million from the prior-year quarter, reflecting 3.6% growth in content licensing and distribution revenue to $740 million, 9.7% jump in affiliate and subscription fees to $420.0 million with a 3.7% decline in advertising sales. However, advertising revenue in the broadcast network jumped 12.0% excluding sales related to prior year's Super Bowl and NCAA basketball tournament.
Total revenue also came ahead of the Zacks Consensus Estimate of $3,478 million.
Adjusted operating income before depreciation and amortization (OIBDA) increased 64.0% to $576 million, whereas OIBDA margin expanded 600 basis points to 16.0%.
Revenue by Segment
Content Group revenue, which comprises Entertainment, Cable Networks, and Publishing, inched down 2.3% to $2,542.0 million from the year-ago quarter, reflecting a decline in entertainment revenue, offset by a revenue growth in cable networks and publishing.
Entertainment revenue declined 4.2% to $1,994.0 million from the year-ago quarter, reflecting the dearth of the Super Bowl broadcast and the impact of the new programming agreement for the NCAA Tournament. However, Entertainment OIBDA soared 84.8% to $268 million.
Increase of rates and growth in subscriptions at Showtime Networks and CBS College Sports Network helped Cable Networks revenue increase 6.8% to $393 million. Cable Networks OIBDA rose 51.5% to $153 million.
Publishing revenue climbed 2.0% to $155 million attributable to the increase in digital content sales. Publishing OIBDA more than doubled to $7 million during the quarter.
Local Group revenue, which comprises Local Broadcasting and Outdoor, increased 3.6% to $1,034 million.
Local Broadcasting revenue increased 2.5% to $621 million from the year-ago quarter due to increased advertising and retransmission revenue. CBS Television Stations advertising revenue inched up 1.0%, whereas CBS Radio advertising revenue grew 4.0%.
Local Broadcasting OIBDA rose 26.1% to $169 million. Management forecasted that for second-quarter 2011 Radio revenue is trending to be up in mid single digits and Televisions Stations advertising revenue is pacing up in low single digits compared with the prior-year quarter.
Outdoor sales also increased 5.4% to $413 million and reflected an improvement in the outdoor advertising sector. Outdoor OIBDA jumped 53.1% to $49 million. For the second-quarter of 2011, Outdoor Group revenue is pacing up mid to high single digits.
Other Financial Details
CBS Corporation ended the quarter with cash and cash equivalents of $972 million, long-term debt of $5,968 million, and shareholders’ equity of $9,780 million. The company generated free cash flow of $853 million during the quarter. The company also repurchased 11.8 million shares for $250 million under its $1.5 billion share repurchase program.
Currently, we have a long-term ‘Neutral’ rating on the stock. Moreover, CBS holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.
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