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Televisa 4Q Underperforms

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Grupo Televisa S.A.B. (TV - Analyst Report) reported fourth-quarter 2011 financial results, which fell below the Zacks Consensus Estimates. A significant surge in financing costs hurt the company the most.  Quarterly consolidated net income was approximately $155 million, down 17.3% year over year. Fourth-quarter EPGDS (Earnings per Global Depository Shares) was 27 cents, significantly below the Zacks Consensus Estimate of 36 cents. Quarterly consolidated net revenue of $1,306.6 million was an improvement of 10.9% over the prior-year quarter but miles below the Zacks Consensus Estimate of $1,409 million. Fiscal 2011 royalty from Univision was $224.9 million, up 44.1% year over year.

Quarterly gross margin was 56% compared with 55.7% in the year-ago quarter. Fourth-quarter consolidated operating income was $387.7 million, up 16.2% over the prior-year quarter. Quarterly operating margin was 29.7% compared with 28.3% in the year-ago quarter.

At the end of 2011, Televisa had approximately $1,549.9 million cash and marketable securities compared with $2,548.8 million at the end of 2010. Capital expenditure during 2011 was $791 million. At the end of 2011, Televisa had $4,059.1 million of outstanding debt on its balance sheet compared with $3,894.8 million at the end of 2010. At the end of 2011, the debt-to-capitalization ratio was 0.49 compared with 0.47 at the end of 2010.

Television Broadcasting Segment

Quarterly revenue was $517.4 million, up 5.1% year over year. Operating profit was $254.3 million, up 3.5% year over year. Quarterly operating margin was 49.1% compared with 49.9% in the year-ago quarter.

Pay Television Networks Segment

Quarterly revenue was $75.6 million, up 23.3% year over year. Operating profit was $37.9 million, up 3.1% year over year. Quarterly operating margin was 50.1% compared with 59.9% in the year-ago quarter.

Programming Exports Segment

Quarterly revenue was $97.1 million, up 34.5% year over year. Operating profit was $52.5 million, up 35.1% year over year. Quarterly operating margin was 54.1% compared with 53.8% in the year-ago quarter.

Publishing Segment

Quarterly revenue was $69.7 million, up 3.3% year over year. Operating profit was $11.4 million, down 9.8% year over year. Quarterly operating margin was 16.3% compared with 18.7% in the year-ago quarter.

Sky Segment

Quarterly revenue came in at $228.3 million, up 3.3% year over year. Operating profit was $100.8 million, up 10.8% year over year. Quarterly operating margin was 44.1% compared with 44.3% in the year-ago quarter.

Cable and Telecom Segment

Quarterly revenue was $262.7 million, up 16% year over year. Operating profit was $99.9 million, up 27.8% year over year. Quarterly operating margin came in at 38% compared with 34.5% in the year-ago quarter.

Other Businesses Segment

Quarterly revenue was $80.4 million, up 7.8% year over year. Operating loss was $4.8 million, down 37.9% year over year. Quarterly operating margin was a negative 5.9% compared with a negative 10.3% in the year-ago quarter.

Subscriber Statistics

As on December 31, 2011, Televisa had 2,182,819 Video subscribers; 1,066,641 Broadband subscribers; and 649,860 Telephony subscribers. Together these constitute 3,899,320 revenue generating units (RGU) in the Cable and Telecom segment. As on December 31, 2011, Televisa had 4,008,374 gross active Satellite TV subscribers including 157,646 commercial subscribers. These figures were up 31.7% and 5.2% year over year, respectively.

Future Financial Outlook and Restructuring

Televisa has decided to create a new operating segment called “Content” from 2012. This segment will cover all sources of revenue derived from its content businesses, which at present is scattered in TV Broadcasting, Pay TV Networks, Programming Exports, and Online services. The newly formed Content segment has three sub-segments, namely, Advertising, Network Subscription, and Licensing & Syndication. The content business grew 5% year over year in 2011.

Televisa raised its 2012 capital expenditure budget by 7% to $850 million. Univision is expected to generate $245 million of royalty revenue in 2012. Further, management has decided to propose an annual dividend payment of $100 million to shareholders at an upcoming AGM.

Our Recommendation

Televisa is at present facing a competitive threat from the telecom giant Telefonos de Mexico S.A.B. , who is trying to enter the Mexican broadcast TV market passively through a deal with DISH Mexico.  We maintain our long-term Neutral recommendation on Televisa. Currently, it holds a short-term Zacks #3 Rank (Hold) on the stock.

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