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CBS Corp. (CBS) Misses Q4 Earnings & Revenue Estimates

Zacks

CBS Corporation CBS, which has entered into a deal with Entercom to merge its radio business, reported fourth-quarter 2016 results, wherein its earnings missed the Zacks Consensus Estimate for the first time in eight quarters. The company’s adjusted earnings from continuing operations came in at $1.00 per share that lagged the Zacks Consensus Estimate of $1.10 but has increased 22% from 82 cents reported in the year-ago quarter.

Moreover, total revenue of this diversified media conglomerate dipped 2% to $3,518 million and also missed the Zacks Consensus Estimate of $3,812 million, marking the first revenue miss after beating the same in the preceding four quarters. Decrease in revenue was primarily due to decline in advertising and fall in content licensing and distribution revenues. However, affiliate and subscription fee revenues increased during the quarter, with reverse comp witnessing a gain of 25%.

Not much movement was witnessed in after-hours trading session yesterday. However, the stock has surged 38.5% in the past one year, comfortably outperforming the Zacks categorized Broadcasting-Radio/TV industry which has gained 21.1%.


Total affiliate and subscription fees grew 13% to $770 million. Total advertising revenue edged down 3% to $1,796 million due to nine hours of primetime preemptions for elections coverage. Further, it was impacted due to three fewer Thursday Night Football games in comparison with 2015. However, increased political spending benefitted the advertising. Moreover, content licensing and distribution revenues came in at $893 million, down 12% while Affiliate and subscription fees rose 13% to $770 million.

Operating income climbed 10% to $733 million attributable to growth from high-margin revenues, which includes political advertising, retransmission revenues, as well as fees from CBS Television Network affiliated stations. Operating margin came in at 20.8% in comparison with 18.5% in the prior-year quarter.

CBS Corporation Price, Consensus and EPS Surprise

CBS Corporation Price, Consensus and EPS Surprise | CBS Corporation Quote

Segment wise, Entertainment revenue decreased 3% to $2,394 million. Affiliate and subscription fees surged 28% on account of rise in station affiliation fees and subscription growth for CBS All Access. However, network advertising revenue declined 8%. The company said that network advertising has improved in first-quarter 2017.

The segment’s operating income increased 7% to $371 million, primarily driven by growth from high-margin revenues and also due to decline in sports programming costs.

Cable Networks’ revenue dropped 11% to $501 million primarily owing to tough year-over-year comparison. In 2015, Cable Networks consisted of multiyear international licensing agreement in Europe as well as the domestic sale of House of Lies.

The segment’s operating income was down 4% to $219 million mainly due to decrease in revenue, partly mitigated by lower programming costs.

Publishing revenue of $209 million was down 10% primarily due to tough year-over-year comparison. In prior-year quarter, the bestselling title was Stephen King. Operating income came in at $36 million, up from $34 million in the year-ago period, as lower production costs overshadowed decline in revenues.

Local Media (CBS Television Stations) revenue grew 16% to $526 million, reflecting higher retransmission revenue and increased political advertising sales on account of federal and state elections. Operating income advanced 45% to $216 million mainly owing to higher revenue.

Other Financial Details

CBS Corp., which shares space with Twenty-First Century Fox, Inc. FOXA, ended the quarter with cash and cash equivalents of $598 million, long-term debt of $8,902 million and shareholders’ equity of $3,689 million. In the quarter, the company generated cash flow from operations of $379 million and incurred capital expenditures of $85 million, thereby resulting in free cash flow of $252 million.

During the quarter under review, CBS Corp. bought back 25.4 million shares for $1.5 billion. In 2016, the company bought back 54.3 million shares for $3 billion.

Bottom Line

CBS Corp. which has entered into an agreement with Entercom to integrate its CBS Radio in a tax-free merger expects the deal to be sealed by second-half 2017. Following, the merger CBS Corp. dependency on advertising will be only 45% of the total revenues, down from more than 70% a few years ago.

In 2016, the company crossed $1 billion mark in revenues from retransmission consent and reverse compensation. In 2017, management expects retransmission and reverse compensation to increase 25% from the prior year. The company aims to achieve $2.5 billion of revenues from retransmission and reverse compensation by 2020.

Moreover, with the launch of Showtime's streaming service; online news channel, CBSN; and over-the-top service, CBS All Access, the company is generating incremental revenue. The company is also extending its Showtime brand, which is now available in Spain, Canada, Australia and several key European markets.

CBS Corp. has come up with a new commercial-free subscription for its over-the-top service. This ad-free model to watch CBS All Access's on-demand shows can be availed at $9.99 per month, $4 higher than the present subscription service, inclusive of commercials. The company informed that subscribers will be able to view CBS All Access's on-demand library of over 7,500 episodes.

Zacks Rank

CBS Corp. currently carries a Zacks Rank #3 (Hold). Better-ranked stocks include Gray Television, Inc. GTN and Scripps Networks Interactive, Inc. SNI. Both the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Gray Television has a long-term earnings growth rate of 6.5%.

Scripps Networks Interactive has long-term earnings growth rate of 10.8%.

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