Higher advertising revenues from Thursday night NFL and mid-term elections along with constantly rising retransmission revenues helped CBS Corporation (CBS) to close 2014 on a high note. The company’s fourth-quarter adjusted earnings per share from continuing operations came in at 77 cents, rising 8.5% year over year and in line with the Zacks Consensus Estimate.
Though unfavorable forex fluctuations hurt earnings per share by 3 cents, aggressive share buyback activity provided ample cushion to the bottom line. The company has purchased $800 million worth of stock in the quarter and intends to buy back another $1 billion in the first quarter of 2015. Shares were up 3% in the extended trading session on Feb 12, 2015.
Some other highlights include the launch of a streaming Showtime service in Canada in association with Bell Media. With highly acclaimed shows like NCIS, The Good Wife, CSI and The Big Bang Theory, CBS Network continues to be the most watched television network in the U.S. With tremendous demand for its content, the company continues to monetize it in several newer ways, thereby boosting revenues.
Back to results, total revenue grew 3.1% to $3,681 million and was ahead of the Zacks Consensus Estimate of $3,642 million driven by 4.1% growth in advertising to $2,147 million and 10.9% rise in affiliate fees to $601 million.
However, adjusted operating income before depreciation and amortization (OIBDA) decreased 3.7% to $778 million as the company faced higher costs mainly on account of new NFL contracts.
Segment Detail
Entertainment revenues grew 2.1% to $2,260 million owing to increases in advertising affiliate and subscription fees. However, the segment’s OIBDA fell 31.3% to $287 million due to increased investment in television content.
Cable Networks revenues increased 5% to $499 million due to higher licensing and affiliate fees. Subsequently, the segment’s OIBDA also increased 24% to $199 million.
Publishing revenues fell 4.4% to $215 million due to tougher year over year comparisons. The segment’s OIBDA also fell 27% to $27 million because of lower revenues and higher advertising costs.
Local Broadcasting revenues were up 9% to $785 million in the quarter on higher political advertising given mid-term elections. The segment’s OIBDA grew 19% to $313 million. CBS Television Stations’ and CBS Radio’s revenues grew 15% and 2%, respectively.
Other Financial Details
CBS Corp. ended the quarter with cash and cash equivalents of $428 million, long-term debt of $6,510 million, and shareholders’ equity of $6,970 million. For the year, the company generated net cash flow from operations of $1,275 million and incurred capital expenditures of $206 million. Free cash flow generated during the quarter was of $880 million, substantially up from $280 million generated in fourth quarter of 2013.
Our Take
CBS Corp., which competes with The Walt Disney Company (DIS), is focused on lowering its dependency on conventional advertising, which is commendable since it is highly susceptible to economic headwinds. Separation of CBS Outdoor Americas Inc. was a step in that direction.
Also, the company is focusing on enhancing its non-advertising revenue streams, like reverse compensation from affiliates, content monetization, digital distribution, syndication sales and retransmission fees, to boost its revenues.
CBS Corp. continues to expect retransmission fees to hit the $2 billion mark in 2020. Currently, it expects retransmission fees to reach $1 billion by 2017. Significant deals in the pipeline make the company positive about achieving its target.
CBS Corp. is currently a Zacks Rank #3 (Hold) stock.
Other Stocks to Consider
Apart from CBS, Other stocks worth consideration in the media sector include Nexstar Broadcasting Group, Inc. (NXST) and Sinclair Broadcast Group, Inc. (SBGI). Both sport a Zacks Rank #1 (Strong Buy).
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