Viacom Beats Estimates (NWSA) (TWX) (VIAB)

Zacks

Viacom Inc. (VIAB) declared fourth-quarter 2012 financial results, where the bottom line topped the Zacks Consensus Estimates but the top line fell short of the same.

Net income from continuing operations in the quarter was $643 million or $1.24 per share compared with $574 million or $1.00 per share in the prior-year quarter. Adjusted EPS of $1.24 was also above the Zacks Consensus Estimate of $1.17.

Total revenue in the reported quarter was $3,363 million, down 17% year over year and also below the Zacks Consensus Estimate of $3,428 million. Poor performance of the Filmed Entertainment business has resulted in the slowdown of revenue growth. Quarterly operating income was $1,050 million, increased 13% year over year.

During the reported quarter, Viacom bought 14.2 million common shares for $700 million. At the end of the fourth quarter of fiscal 2012, Viacom had $848 million in cash & cash equivalent and $8,131 million in outstanding debt on its balance sheet compared with cash and cash equivalent of $1,021 million and outstanding debt of $7,342 at the end of fiscal 2011. Debt-to-capitalization ratio at the end of the reported quarter was 0.52 compared with 0.46 at the end of fiscal 2011.

Media Networks Segment

Quarterly revenue of $2,290 million decreased 1% year over year, mainly hurt by weaker advertising and ancillary revenues. Quarterly operating profit was $933 million, down 3% year over year. However, domestic affiliate revenues and worldwide affiliate revenues rose 11% and 12%, respectively. Domestic advertising revenue dropped 6% year over year while worldwide advertising revenue fell 7% year over year.

Filmed Entertainment Segment

Quarterly revenue dropped 39% year over year to $1,087 million, hamstrung by lack of popular movie releases and lower home entertainment title releases. Quarterly operating profit was $195 million, up 5% year over year.

Global Theatrical revenue fell by a whopping 83% year over year primarily due to lackluster box office performance than the year-ago quarter. Worldwide Home Entertainment dipped 32% coupled with steep rise in television license fees by 19%. However, Worldwide Filmed Entertainment ancillary revenues jumped 21% to $147 million in the quarter, fuelled by higher digital revenues.

Recommendation

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

However, stiff competition from other media companies like News Corp. (NWSA) and Time Warner Inc. (TWX) along with flop movie releases and mounting debt may act as headwinds for the stock, going forward. We, thus, maintain our long-term Neutral recommendation on Viacom.

Currently, Viacom has a Zacks #3 Rank, implying a short-term Hold rating on the stock.

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