Viacom Beats Q4 Earnings on Theater Revenue Strength

Viacom Inc. (VIAB) declared fourth-quarter fiscal 2014 financial results wherein both the top and the bottom line surpassed the corresponding Zacks Consensus Estimate. Higher Affiliate Fees and Theatrical revenues have supported the quarter’s impressive performance.

Net income from continuing operations in the reported quarter was $732 million or $1.72 per share compared with $806 million or $1.69 per share in the prior-year quarter. Quarterly adjusted earnings per share of $1.71 surpassed the Zacks Consensus Estimate of $1.68.

Total revenue in the fourth quarter stood at $3,991 million, up 9% year over year and above the Zacks Consensus Estimate of $3,922 million. Quarterly operating income came in at $1,164 million, highlighting an increase of 5% year over year. During the reported quarter, Viacom bought 10 million common shares for $850 million.

At the end of the fourth quarter, Viacom had $1,000 million of cash & cash equivalents and $12,751 million in outstanding debt on its balance sheet compared with $2,403 million and $11,867, respectively, at the end of fiscal 2013. Meanwhile, the debt-to-capitalization ratio stood at 0.77 against 0.69 at the end of fiscal 2013.

Media Networks Segment

Quarterly revenues of $2,664 million inched up 8% year over year, mainly boosted by higher affiliated fees. Quarterly operating profit came in at $1,087 million, up 5% year over year. Annually, domestic and worldwide affiliate fee revenues grew 21% and 22%, respectively. On the other hand, on a year-over-year basis, domestic and worldwide advertising revenues fell 5% and 2%, respectively.

Filmed Entertainment Segment

Quarterly revenues jumped 12% year over year to $1,357 million, mainly driven by the carryover revenues from the release of the movie Transformer: Age of Extinction in the last-year quarter. Quarterly operating income stood at $213 million, indicating a decline of 27% year over year. On the other hand, Global Theatrical revenues increased an astounding 226% while Worldwide Home Entertainment revenues declined 38% 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 networks-based business model, strong affiliate fee revenue growth, increased number of share repurchase plans, multi-platform content, and is one of the fastest growing traditional ad media.

However, stiff competition from other media companies like News Corp. (NWSA), CBS Corp. (CBS) and Time Warner Inc. (TWX) along with mounting debts may act as headwinds for the stock, going forward.

Currently, Viacom has a Zacks Rank #3 (Hold).