Viacom Inc.(VIA.B) declared blockbuster financial results in the third quarter of 2011. Quarterly net income from continuing operation was $574 million or 97 cents per share in the reported quarter compared with $432 million or 71 cents per share in the prior-year quarter.
However, adjusted (excluding debt extinguishment cost) EPS of 99 cents was significantly higher than the Zacks Consensus Estimate of 86 cents.
Quarterly total revenue was $3,766 million, up 15% year over year and beat the Zacks Consensus Estimate of $3,508 million. The significant upside in revenue was primarily attributable to the significant improvement in its affiliated, advertising and television license fees. Quarterly operating income was $981 million, up 20% year over year driven by the soaring profit from the Media Networks segment.
During the reported quarter, Viacom bought 14.2 million common shares worth $700 million. At the end of the third quarter of 2011, Viacom had $955 million in cash & cash equivalent and $6,928 million in outstanding debt on its balance sheet compared with cash & cash equivalent of $837 million and outstanding debt of $6,721 at the end of fiscal 2010. Debt-to-capitalization ratio at the end of the reported quarter was 0.43 compared with 0.42 at the end of fiscal 2010.
Media Networks Segment
Quarterly revenue of $2,391 million increased 16% year over year. This was mainly driven by solid growth in affiliate fees and advertising sales. Worldwide affiliate revenues grew 19% in the reported quarter.
Domestic and Worldwide advertising revenue increased by 12% and 14%, respectively, from the prior-year quarter. Worldwide Ancillary revenue rose 13% year over year. Quarterly operating profit was $1,033 million, up 27% year over year.
Filmed Entertainment Segment
Quarterly revenue of $1,407 million climbed 13% year over year mainly driven by improved television license revenues and higher home entertainment sales. Worldwide home entertainment revenue increased 33% year over year. Theatrical revenue declined 9% year over year while ancillary revenue surged 57% year over year. Television license fees rose 36% annually. Quarterly operating profit was $49 million, down 29% from the year-ago quarter. Operating profit rose mainly due to higher promotional costs related to the release of the movie Transformers: Dark of the Moon.
Recommendation
Viacom is well positioned for the long-term growth as it continues to benefit from its predominately cable networks-based business model; strong affiliate fee revenue growth, global brands, multi-platform content, and being the fastest growing traditional ad media.
However, stiff competitions fromother media companies like News Corp. (NWSA) and Time Warner Inc. (TWX) coupled with slow economic recovery are headwinds for the stock going forward.
We, thus, maintain our long-term Neutral recommendation forViacom. Currently, Viacom has a Zacks#3 Rank, implying a short-term Hold rating.
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