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Viacom Beats on Q1 Earnings, Lags Rev

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Viacom Inc. (VIAB - Free Report) declared first-quarter 2014 financial results with the bottom line beating the Zacks Consensus Estimate but the top line missing the same.

Net income from continuing operations in the reported quarter was $547 million or $1.20 per share compared with $461 million or 91 cents per share in the prior-year quarter. The reported earnings were above the Zacks Consensus Estimate of $1.15 per share.

Total revenue in the reported quarter was $3,197 million, down 4% year over year and also below the Zacks Consensus Estimate of $3,345 million. A substantial decline in Film Entertainment Segment revenues led to the year-over-year decline. Quarterly operating income was $960 million, up 20% year over year.

During the reported quarter, Viacom bought 10.3 million common shares for $850 million. At the end of the first quarter of fiscal 2014, Viacom had $1,417 million in cash & cash equivalent and $11,868 million in outstanding debt on its balance sheet compared with cash and cash equivalent of $2,403 million and outstanding debt of $11,867 at the end of fiscal 2013. At the end of the first quarter of fiscal 2014, the debt-to-capitalization ratio was 0.71 against 0.69 at the end of fiscal 2013.

Media Networks Segment

Quarterly revenues of $2,541 million inched up 6% year over year, mainly triggered by better advertising and affiliate revenues. Quarterly operating profit was $1,114 million, up 8% from the prior-year quarter. Both domestic and worldwide affiliate revenues rose 10% year over year. On a year-over-year basis, both domestic and worldwide advertising revenues rose 3% and 4%, respectively.  

Filmed Entertainment Segment

Quarterly revenues fell sharply by 30% year over year to $681 million, mainly affected by fewer movie releases. Quarterly operating loss was $74 million, up 47% year over year.

Global Theatrical revenues increased 52% year over year, primarily due to less hit movie releases than the year-ago quarter. Worldwide Home Entertainment fell 37% coupled with a 3% decline in television license fees. However, Worldwide Filmed Entertainment ancillary revenues rose 9%.

Our Take

We believe that Viacom is well positioned for long-term growth as it continues to benefit from its predominant cable networks-based business model, strong affiliate fee revenue growth, increased share repurchase plans and multi-platform content.

However, stiff competition from media companies like News Corp. (NWSA - Free Report) , CBS Corporation (CBS - Free Report) and Time Warner Inc. (TWX - Free Report) along with mounting debt may act as headwinds for the stock, going forward.

Currently, Viacom has a Zacks Rank #3 (Hold).

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