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Viacom (VIAB) Q1 Earnings Surpass Estimates, Decrease Y/Y

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Viacom reported mixed results in the first quarter of fiscal 2018 (ended Dec 31, 2017), wherein earnings per share outpaced the Zacks Consensus Estimate but revenues lagged the same.

The company’s earnings (excluding 30 cents from non-recurring items) of $1.03 per share surpassed the Zacks Consensus Estimate by 8 cents. However, total revenues of $3,073 million missed the Zacks Consensus Estimate of $3,140.4 million.

Moreover, earnings per share and revenues declined on a year-over-year basis. The bottom line contracted approximately 1%. The top line decreased 7.6% on lacklustre performances at both the company’s divisions — Media Networks and Filmed Entertainment.

Quarterly adjusted operating income also declined 4% year over year to $717 million. Viacom exited the quarter with cash and cash equivalents of $394 million, compared with $1,389 million at the end of the fourth quarter of fiscal 2017 (ended Sep 30,2017). We note that the company’s cash balance during  the fourth quarter of fiscal 2017 was boosted by the sale of a non-core asset.

Moreover, Viacom is looking to bring down its debt levels. Viacom’s debt burden (non-current) at the end of the first quarter of fiscal 2018 stood at $10.1 billion, compared with $11.1 billion at the end of the fourth quarter of fiscal 2017.

Viacom Inc. Price, Consensus and EPS Surprise

Viacom Inc. Price, Consensus and EPS Surprise | Viacom Inc. Quote

Segmental Performance

Media Networks

Quarterly revenues for the company’s Media networks segment were $2.56 billion, down 1% year over year. The decline was due to lower affiliate revenues.  While domestic revenues were down 6% to $1.93 billion, international revenues surged 18% to $631 million. Foreign currency movements aided segmental results to the tune of 5%. The acquisition of Telefe, apart from Viacom’s growth in Europe boosted international revenues.

The segment generates revenues principally from three sources: (i) affiliate revenues (ii) advertising revenues; and (iii) ancillary revenues. Total affiliate revenues declined 4% to $1.09 billion due to decrease in subscribers domestically. On the domestic front, the metric was down 8% to $907 million. Nevertheless, international affiliate revenues increased 18% to $187 million.

However, total advertising revenues increased 1% year over year to $1.31 billion. The uptick can be attributed to higher revenues on the international front, which increased 22% to $371 million. On the domestic front, the metric declined 5% to $937 million. Meanwhile, ancillary revenues increased 5% to $158 million in the quarter, on the back of favorable foreign currency movements.

Quarterly operating income (on an adjusted basis) declined 7% to $913 million in the reported quarter, owing to higher expenses.

Filmed Entertainment

Quarterly revenues declined 28% year over year to $544 million due to weaknesses in all sub-groups. While theatrical revenues were down 48%, licensing revenues decreased 13% year over year. Additionally, ancillary and home entertainment revenues declined 38% and 25%, respectively, in the reported quarter. This segment posted an operating loss (on an adjusted basis) of $130 million.

Other Developments

Of late, Viacom’s board members formed a special committee of independent directors to evaluate a potential merger with CBS Corporation . The deal, if it materializes, might aid Viacom with cost synergies among other factors.

Also, the company recently inked a deal with Telefonica (TEF - Free Report) to allow streaming of a wide variety of TV channels and content by subscribers of the Movistar Play platform in Latin America.

Zacks Rank & Key Pick

Viacom carries a Zacks Rank #3 (Hold). A better-ranked stock in the Zacks Media Conglomerates industry is Time Warner holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Time Warner has an impressive long-term (three - five years) earnings growth rate of 10.2%.

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