It has been about a month since the last earnings report for CBS Corporation . Shares have lost about 10.2% in that time frame.
Will the recent negative trend continue leading up to its next earnings release, or is CBS due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
CBS Corp Q4 Net Earnings Rise on Licensing Business Growth
CBS Corporation posted fourth-quarter 2017 adjusted net earnings from continuing operations of $455 million, up 6% year-over-year.
Moreover, total revenues of this diversified media conglomerate came in at $3,921 million, up 11% year over year. Sharp gains in revenues were driven by rise in content licensing and distribution, and affiliate and subscription fee revenues.
Further, affiliate and subscription fee revenues of $923 million grew 20% on the back of 31% jump in retransmission revenues, rise in fees from CBS Television Network affiliated stations and digital subscription services. Content licensing and distribution revenues also surged 33% to $1,191 million owing to robust growth from domestic as well as international licensing sales. However, total advertising revenues decreased 3% to $1,745 million primarily due to decline in political advertising sales.
Adjusted operating income inched up 1% to $739 million, operating margin contracted 200 basis points to 18.8%.
Segmental Details
Entertainment revenues increased 18% to $2,818 million, primarily owing to rise in content licensing and distribution revenues, and affiliate and subscription fees. Affiliate and subscription fees surged 40% on account of rise in station affiliation fees, subscriber growth at CBS All Access and gain from digital efforts. Content licensing and distribution revenues rose 38% driven by domestic and licensing sales. Advertising revenues were up 4% owing to addition of Network Ten, a leading broadcast networks in Australia. The segment’s operating income increased 25% to $465 million.
Cable Networks’ revenues were up 9% to $547 million, primarily on an improved Showtime digital streaming subscription offering as well as licensing of Showtime content. However, the segment’s operating income decreased 3% to $201 million, mainly due to investment in programming.
Publishing revenues of $235 million improved 12% year over year, primarily on rising print book and digital audio sales. Notably, bestselling titles in the quarter were Leonardo da Vinci by Walter Isaacson, Principles by Ray Dalio andIt by Stephen King. Operating income came in at $44 million, up from $36 million in the year-ago period owing to higher revenues.
Local Media revenues were down 14% to $450 million as the company benefited from robust political adverting sales in the year-ago quarter. Nevertheless, the decline was to some extent mitigated by increase in retransmission revenues. Operating income also declined 37% to $216 million. During the first quarter of 2018, local media revenue is pacing to be up low single digits.
Other Financial Details
CBS ended the quarter with cash and cash equivalents of $285 million, long-term debt of $9,464 million and shareholders’ equity of $1,978 million. While net cash flow used by operating activities was $100 million, capital expenditures incurred were $73 million during the quarter. The company reported free cash flow of $102 million.
In the quarter under review, CBS bought back 34.1 million shares that include shares retired due to the split-up of CBS Radio. Further, it expects to repurchase over $800 million to $1 billion worth of shares during the 2018.
Bottom Line
The company aims to exceed its target of $2.5 billion of revenues from retransmission and reverse compensation by 2020. Management now intends to expand CBS All Access in international market, which will be initiated from Canada in the first half of 2018, and then to Australia and Europe.
CBS now envisions high single digit growth in revenue and high teens increase in earnings per share for 2018. Further, management anticipates growth of more than $100 million each in areas comprising political advertising — due to mid-term election cycle in the later part of the year, direct-to-consumer offerings — on account of subscriber growth at CBS All Access and Showtime OTT, re-transmission/reverse comp, and international content licensing.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to five lower.
VGM Scores
At this time, CBS has a poor Growth Score of F, however its Momentum is doing a lot better with a B. The stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for value investors than momentum investors.
Outlook
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Interestingly, CBS has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Image: Bigstock
Why Is CBS (CBS) Down 10.2% Since its Last Earnings Report?
It has been about a month since the last earnings report for CBS Corporation . Shares have lost about 10.2% in that time frame.
Will the recent negative trend continue leading up to its next earnings release, or is CBS due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
CBS Corp Q4 Net Earnings Rise on Licensing Business Growth
CBS Corporation posted fourth-quarter 2017 adjusted net earnings from continuing operations of $455 million, up 6% year-over-year.
Moreover, total revenues of this diversified media conglomerate came in at $3,921 million, up 11% year over year. Sharp gains in revenues were driven by rise in content licensing and distribution, and affiliate and subscription fee revenues.
Further, affiliate and subscription fee revenues of $923 million grew 20% on the back of 31% jump in retransmission revenues, rise in fees from CBS Television Network affiliated stations and digital subscription services. Content licensing and distribution revenues also surged 33% to $1,191 million owing to robust growth from domestic as well as international licensing sales. However, total advertising revenues decreased 3% to $1,745 million primarily due to decline in political advertising sales.
Adjusted operating income inched up 1% to $739 million, operating margin contracted 200 basis points to 18.8%.
Segmental Details
Entertainment revenues increased 18% to $2,818 million, primarily owing to rise in content licensing and distribution revenues, and affiliate and subscription fees. Affiliate and subscription fees surged 40% on account of rise in station affiliation fees, subscriber growth at CBS All Access and gain from digital efforts. Content licensing and distribution revenues rose 38% driven by domestic and licensing sales. Advertising revenues were up 4% owing to addition of Network Ten, a leading broadcast networks in Australia. The segment’s operating income increased 25% to $465 million.
Cable Networks’ revenues were up 9% to $547 million, primarily on an improved Showtime digital streaming subscription offering as well as licensing of Showtime content. However, the segment’s operating income decreased 3% to $201 million, mainly due to investment in programming.
Publishing revenues of $235 million improved 12% year over year, primarily on rising print book and digital audio sales. Notably, bestselling titles in the quarter were Leonardo da Vinci by Walter Isaacson, Principles by Ray Dalio andIt by Stephen King. Operating income came in at $44 million, up from $36 million in the year-ago period owing to higher revenues.
Local Media revenues were down 14% to $450 million as the company benefited from robust political adverting sales in the year-ago quarter. Nevertheless, the decline was to some extent mitigated by increase in retransmission revenues. Operating income also declined 37% to $216 million. During the first quarter of 2018, local media revenue is pacing to be up low single digits.
Other Financial Details
CBS ended the quarter with cash and cash equivalents of $285 million, long-term debt of $9,464 million and shareholders’ equity of $1,978 million. While net cash flow used by operating activities was $100 million, capital expenditures incurred were $73 million during the quarter. The company reported free cash flow of $102 million.
In the quarter under review, CBS bought back 34.1 million shares that include shares retired due to the split-up of CBS Radio. Further, it expects to repurchase over $800 million to $1 billion worth of shares during the 2018.
Bottom Line
The company aims to exceed its target of $2.5 billion of revenues from retransmission and reverse compensation by 2020. Management now intends to expand CBS All Access in international market, which will be initiated from Canada in the first half of 2018, and then to Australia and Europe.
CBS now envisions high single digit growth in revenue and high teens increase in earnings per share for 2018. Further, management anticipates growth of more than $100 million each in areas comprising political advertising — due to mid-term election cycle in the later part of the year, direct-to-consumer offerings — on account of subscriber growth at CBS All Access and Showtime OTT, re-transmission/reverse comp, and international content licensing.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to five lower.
CBS Corporation Price and Consensus
CBS Corporation Price and Consensus | CBS Corporation Quote
VGM Scores
At this time, CBS has a poor Growth Score of F, however its Momentum is doing a lot better with a B. The stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for value investors than momentum investors.
Outlook
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Interestingly, CBS has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.