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Analyst Blog

Viacom Inc. declared blockbuster financial results in the fourth quarter of 2011. In synergy with such strong performance, the company increased its share repurchase authorization from $4 billion to $10 billion.

Quarterly net income from continuing operation was $576 million or $1.00 per share in the reported quarter compared with $488 million or 80 cents per share in the prior-year quarter. However, adjusted (excluding debt extinguishment cost) EPS of $1.06 was ahead of the Zacks Consensus Estimate of $1.02.

Quarterly total revenue was $4,053 million, up 22% year over year, and beat the Zacks Consensus Estimate of $3,742 million. The significant upside in revenue was mainly attributable to the strong performance of Filmed Entertainment and Media Networks segments. Quarterly operating income was $929 million, which increased 11% year over year.

During the reported quarter, Viacom bought 19.7 million common shares worth $900 million. At the end of the fiscal 2011, Viacom had $1,021 million in cash & cash equivalent and $7,342 million of 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 0.46 compared with 0.42 at the end of fiscal 2010.

Media Networks Segment

Quarterly revenue of $2,292 million increased 8% year over year. This was mainly driven by solid growth in affiliate fees and advertising sales. Worldwide affiliate revenues climbed 11% in the reported quarter.

Both domestic and worldwide advertising revenue jumped 7% year over year. Worldwide Ancillary revenue dipped 3% year over year. Quarterly operating profit was $870 million, up 1% year over year.

Filmed Entertainment Segment

Quarterly revenue surged 46% year over year to $1,793 million mainly riding on the huge success of the movie Transformers: Dark of the Moon and higher home entertainment sales. Worldwide home entertainment revenue increased 26% year over year. Theatrical revenue increased by a whopping 107% year over year while ancillary revenue expanded 49% year over year. Television license fees rose 5% annually.

Quarterly operating profit  skyrocketed 158% year over year to $129 million, mainly on the back of strong box office collection of the movie Transformers: Dark of the Moon.

Recommendation

Viacom is well positioned for 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 a continuous share repurchase plan.

However, stiff competitions fromother media companies like News Corp. (NWSA - Analyst Report) and Time Warner Inc. (TWX - Analyst Report) as well as increased programming expense may act as headwinds for the stock going forward.

We, thus, maintain our long-term Neutral recommendation for Viacom. Currently, Viacom has a Zacks #3 Rank, implying a short-term Hold rating.

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