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CBS Corporation (CBS - Analyst Report) first quarter 2014 earnings of 78 cents grew 7% year over year and was ahead of the Zacks Consensus Estimate of 75 cents. Higher operating income and aggressive share buyback activity led to the bottom line growth.

However, the shift of Super Bowl broadcast this year to Twenty-First Century Fox, Inc. (FOXA - Analyst Report) had a telling effect on the CBS Corp’s revenues leading to a 2.3% drop in share price in the after-market trading hours. Total revenue of $3,856.0 million fell short of the Zacks Consensus Estimate of $3,947 million and declined 4.6% from the prior-year quarter. Super Bowl had alone contributed more than $280 million to revenues in the prior year quarter.

The 6% rise in content licensing and distribution revenues to $1,073 million and 9% increase in affiliate and subscription fees to $567 million were not enough to offset the lower advertising revenue.

Operating income before depreciation and amortization (OIBDA) increased 2% to $930 million and operating income grew 2% to $818 million. The rise in both the key financial metrics was driven by robust growth of high margin revenue.

CBS Corp. continues to benefit from content monetization and rise in non-advertising revenue. Moreover, the company has received the IRS ruling for the conversion of its subsidiary CBS Outdoor Americas Inc. (CBSO - Snapshot Report) into a real estate investment trust (REIT). This will be significant as CBS Corp is looking to emerge as a pure content company. Moreover, with political advertising increasing in the second half of 2014, more syndication deals ahead and spike in retransmission and affiliate revenues, CBS Corp is set to deliver another solid financial performance in 2014.

Segment Details

Content Group revenues fell 6% to $2,993 million as growth at Cable Networks was run down by dismal performance at Entertainment and Publishing.

Entertainment revenues fell 9% to $2,303 million from the year-ago quarter, driven by Super Bowl broadcast in the prior-year period and fewer NCAA Division I Men’s Basketball Championship matches in the quarter under review. The segment’s OIBDA fell 5% to $457 million as strong growth of licensing of television programming was offset by lower advertising revenue.

Continuous growth in licensing revenues and affiliate revenues supplemented Cable Networks’ revenues to mark an increase of 12% to $537 million. Moreover, growth in cable networks revenues helped the segment’s OIBDA to increase 12% to $259 million, partly offset by a rise in programming costs.

Publishing revenues declined 11% to $153 million but the segment’s OIBDA increased 8% to $13 million.

Local Group revenues, including Local Broadcasting and Outdoor Americas, came in at $914 million, down 0.5% from the prior-year quarter revenues.

Local Broadcasting revenues decreased 2% to $626 million. CBS Television Stations revenues fell 5% and CBS Radio’s revenues grew 2%. The segments’ OIBDA increased 1% to $200 million due to lower programming costs.

Outdoor Americas revenues rose nearly 2% to $288 million whereas OIBDA decreased 7% to $69 million in the quarter.

Other Financial Details

CBS Corp. ended the quarter with cash and cash equivalents of $311 million, other long-term debt of $5,850 million, and shareholder equity of $8,467 million. The company generated net cash flow from operations of $501 million and incurred capital expenditures of $36 million. Free cash flow of $485 million was generated during the quarter.

In the quarter, CBS Corp. repurchased 31.4 million shares for $2 billion. The company has $3.43 billion worth of shares left to be repurchased as of Mar 31, 2014. For 2014, the company expects to return about $6 billion to shareholders, reflecting the company’s priority to maximize shareholder return.

Our Take

Needless to say, the company is firing on all cylinders and it is expected that this growth momentum will continue in 2014 and beyond. CBS Corp.which competes with The Walt Disney Company (DIS - Analyst Report) is focused on lowering its dependency on conventional advertising, which is commendable since it is highly susceptible to economic headwinds.

Given the increasing reverse compensation from affiliates, strong demand of its content, digital distribution, syndication sales and retransmission consent, CBS Corp. is poised to benefit from diversification of revenue streams.

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.  

Additionally, the company expects CBS Television Network to be a major growth driver as the network owns most shows in the top 10 and top 20 countdowns. Notably, its shows such as NCIS and The Big Bang Theory are worth mentioning in this respect.

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

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