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CBS Corporation’s (CBS - Analyst Report) first-quarter 2013 earnings came in at 73 cents a share, surpassing the Zacks Consensus Estimate of 68 cents and jumping 23.7% from 59 cents earned in the year-ago quarter.
Higher advertising revenue and rise in affiliate and subscription fees were the driving factors. Moreover, lower interest expenses and share buybacks cushioned the bottom line.
Total revenue of $4,040 million for the quarter fell marginally short of the Zacks Consensus Estimate of $4,053 million but increased 6.4% from the prior-year quarter, reflecting 8% and 14% growth in advertising revenue, and affiliate and subscription fees, respectively.
We believe this Zacks Rank #2 (Buy) stock remains well positioned to drive growth in the coming quarters through its strategic initiatives focused on increasing subscription based revenue channels. The company remains optimistic and expects growth momentum to continue in 2013 based on reverse compensation from affiliates, strong demand of its content, digital distribution, syndication sales and retransmission consent. CBS is eyeing around $1 billion in retransmission and reverse compensation revenues by 2017. The company also remains positive about CBS Television Network being the growth driver.
Moreover, CBS continues to benefit from its streaming deals with Netflix Inc (NFLX - Analyst Report) and Amazon. Com. Inc (AMZN - Analyst Report), as evident from the company’s strong double-digit growth in streaming revenues during the quarter.
Alongside, to boost its growth prospects in the cable television market, the company acquired 50% stake in TVGN, TV Guide Network’s pay channel, and the website TVGuide.com from JPMorgan Chase & Company's (JPM - Analyst Report) One Equity Partners.
Coming to the results, adjusted operating income before depreciation and amortization (OIBDA) increased 13.5% to $916 million, whereas OIBDA margin expanded approximately 200 basis points to 23%.
Content Group revenue, comprising Entertainment, Cable Networks and Publishing, increased 8.2% to $3,188 million.
Entertainment revenue rose 9.5% to $2,539 million from the year-ago quarter, reflecting increase in advertising revenue and rise in network affiliation fees. Strong revenue growth led to a 17% jump in the segment’s OIBDA to $480 million.
Growth in subscriptions and rates at Showtime Networks, CBS Sports Network and Smithsonian Networks supplemented Cable Networks revenue to mark an elevation of 5.8% to $478 million. Moreover, growth in cable networks revenue helped the segment’s OIBDA to increase by 11% to $231 million, partly offset by a rise in programming costs.
Publishing revenue declined 2.8% to $171 million, as lower sales of print books more than offset the increased sales of digital books. Digital book sales surged 14% during the quarter. Segment’s OIBDA jumped 20% to $12 million owing to a decline in legal costs and increase in sales of high margin digital books.
Local Group revenue, including Local Broadcasting and Outdoor, came in at $919 million, marginally above the prior-year quarter’s revenue of $910 million.
Local Broadcasting revenue increased 2.6% year over year to $638 million benefiting from the telecast of Super Bowl XLVII to the CBS-affiliated stations and increased retransmission revenues. CBS Television Stations revenue increased 5%, whereas CBS Radio revenue remained flat during the quarter. The segments’ OIBDA surged 16% to $199 million due to rise in revenue and lower programming costs.
Outdoor Americas revenue dropped 2.4% to $281 million as the company did not renew some low-margin and unprofitable contracts. Moreover, the segment witnessed declines in Canada and Mexico. Outdoor Americas’ OIBDA waned 3% to $74 million during the quarter.
The company stated that its local businesses including TV, radio and outdoor, are pacing up in the low single digits for the second quarter.
CBS decided to convert its CBS Outdoor operations in North America and South America into a real estate investment trust (“REIT”) and divest its Outdoor businesses in Europe and Asia.
We believe CBS Corporation’s decision regarding the Outdoor business would augur well, as it would lower its dependency on advertising, which remains vulnerable to the economy’s health.
Other Financial Details
CBS Corporation ended the quarter with cash and cash equivalents of $409 million, long-term debt of $5,901 million, and shareholders’ equity of $9,394 million. The company generated cash flow from operations of $587 million and incurred capital expenditures of $34 million. Free cash flow of $576 million was generated during the quarter.
During the quarter, the company bought back $1.3 billion worth of shares. The company still has share repurchase authorization worth $1.25 billion at its disposal.