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CBS Earnings Streak Continues in Q4

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CBS Corporation (CBS - Free Report) carries on with its fabulous run as it enjoys yet another record quarterly performance. The company ended its superb run for 2013 on a high note as the fourth quarter’s adjusted earnings of 78 cents grew nearly 22% year over year and steered clear of the Zacks Consensus Estimate of 76 cents. The stock price rose 4.4% on the index in the after-hours trading session.

Including earnings from discontinued operations, earnings were 76 cents per share, rising 22.6% from the year-ago quarter.

For the full year, earnings came in at $3.02 per share, a penny ahead of the Zacks Consensus Estimate and up 18.4% year over year. Including earnings from discontinued operations, earnings rose 21% to $3.00 per share. This was the first time that full-year earnings crossed the $3 mark.

Similarly, total revenue of $3,911.0 million cruised ahead of the Zacks Consensus Estimate of $3,831 million and grew 5.8% from the prior-year quarter. This growth in revenues was owing to 27.6% rise in content licensing and distribution revenues to $898 million and 7.3% increase in affiliate and subscription fees to $542 million.

Again, full-year revenues of $15,284 million were ahead of the Zacks Consensus Estimate of $15,194 million and up 8.5% year over year.

Adjusted operating income before depreciation and amortization (OIBDA) increased 7.0% to $927 million and operating income grew 9% to $793 million. The rise in both the key financial metrics was driven by robust revenue growth partly offset by increased investment in television content and higher stock based compensation.

CBS benefited from content monetization and rise in non-advertising revenue. In fact, non-advertising contributed 42% to total revenue in 2013, the highest ever. Moreover, recently CBS has signed several deals with HULU and Amazon Inc. (AMZN - Free Report) among others to put its programming (Under The Dome and Extant for Amazon, Elementary and Blue Bloods for HULU) on a diverse range of platforms and make this as one of the steady sources of revenues.

Segment Details

Content Group revenues, comprising Entertainment, Cable Networks and Publishing, increased 10.4% to $2,916 million due to strong performances across the segment.

Entertainment revenues rose 11.0% to $2,214 million from the year-ago quarter, driven by increase in domestic and international licensing as well as higher advertising and network affiliation revenues. The segment’s OIBDA grew 27% to $418 million as strong revenue growth was partly offset by the company’s increased investment in Television content.

Continuous growth in licensing revenues and affiliate revenues supplemented Cable Networks’ revenues to mark an increase of 9% to $477 million. Moreover, growth in cable networks revenues helped the segment’s OIBDA to increase 8% to $199 million, partly offset by a rise in programming costs.

Publishing revenues rose 5% to $225 million due to increase in the sales of print books. The segment’s OIBDA increased 19% to $37 million on the back of higher revenues.

Local Group revenues, including Local Broadcasting and Outdoor Americas, came in at $1,066 million, down 5.4% from the prior-year quarter revenues.

Local Broadcasting revenues decreased 9% to $719 million as absence of political advertising offset the higher retransmission fees. CBS Television Stations revenues fell 12% and CBS Radio revenues fell 4%. The segments’ OIBDA decreased 19% to $263 million due to lower political advertising revenues.

Outdoor Americas revenues rose nearly 2% to $347 million whereas OIBDA increased 28% to $120 million in the quarter. The company is looking forward to launch the IPO in the first quarter of 2014 but is currently awaiting IRS approval to convert this division into a Real Estate Investment Trust (REIT).

Other Financial Details

CBS ended the quarter with cash and cash equivalents of $397 million, long-term debt of $5,940 million, and shareholders’ equity of $9,966 million. The company generated net cash flow from operations of $1,873 million and incurred capital expenditures of $270 million. Free cash flow of $382 million was generated during the quarter and $ 1,774 billion for the year.

In the quarter, CBS Corporation repurchased 6.1 million shares for $364 million, bringing the full year buybacks to 45.8 million shares at a cost of $2.2 billion.

On Feb 12, 2014, CBS announced an accelerated share repurchases program of $1.5 billion. It will buyback $2 billion worth of shares in the first quarter reflecting the company’s priority to maximize shareholder return.

Our Take

Needless to say, the company is firing on all cylinders and it is expected that this growth momentum will continue in 2014 and beyond. CBS which competes with Twenty-First Century Fox, Inc. (FOXA - Free Report) and The Walt Disney Company (DIS - Free Report) , is focused on lowering its dependency on conventional advertising, which is a commendable since it is highly susceptible to economic headwinds.

Given the increasing reverse compensation from affiliates, strong demand of its content, digital distribution, syndication sales and retransmission consent, CBS is poised to benefit from diversification of revenue streams.

CBS expects retransmission fees to hit the $2 billion mark in 2020. Currently, it expects retransmission fees to reach $1 billion by 2017.  

Additionally, the company expects CBS Television Network to be a major growth driver as the network owns most shows in the top 10 and top 20 countdowns. Notably, its shows such as NCIS and The Big Bang Theory are worth mentioning in this respect.

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

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