Starz reported mixed financial results for the second quarter of 2014. While net income significantly outpaced the Zacks Consensus Estimate, total revenue fell well below.
Quarterly net income stood at $70.1 million or 62 cents per share compared with $63.9 million or 52 cents per share in the year-ago quarter. Second-quarter earnings per share of 62 cents significantly surpassed the Zacks Consensus Estimate of 50 cents.
Quarterly total revenue came in at $410.1 million, signifying a drop of 20.8% year over year and also lagged the Zacks Consensus Estimate of $437 million. Technological division wise, Programming networks and other services revenues were $372 million, down 48.8% and Home video net sales were $38.1 million, highlighting a deterioration of 68.9% year over year.
Quarterly gross margin was 46.8% compared with 43.2% in the prior-year quarter. Operating income was $104.8 million against $116.2 in the year-ago quarter. However, operating margin was 25.6% compared with 22.5% in the prior-year quarter. Adjusted operating income before interest, tax, depreciation and amortization (OIBDA) was $117.4 million, down 9.4% year over year.
Quarterly total cash paid for investment in films and television programs (IFT) was $101 million, up a whopping 110.4% year over year. From May 1, 2014 through Jul 31, 2014, Starz repurchased 3.1 million of its outstanding shares for a total consideration of $92.7 million.
During the first half of 2014, Starz generated $60 million of cash from operations compared with $141.1 million in the year-ago period. Free cash flow, in the reported period was $56.8 million against $138 million in the year-ago quarter.
At the end of the second quarter of 2014, Starz had $12.9 million of cash and $1,115.3 million of outstanding debt compared with $25.7 million of cash and $1,059.4 million of outstanding debt at the end of 2013. The debt-to-capitalization ratio, at the end the reported quarter was 0.94 against 0.95 at the end of 2013.
Starz Networks Segment
Quarterly revenues were $328.2 million, reflecting a drop of 3.5% year over year. Adjusted OIBDA was $121.8 million, up 4.6% year over year. Operating income was $111.2 million, up 6% year over year. Total IFT was $60.1 million, up by an astonishing 175.7% year over year.
Starz Distribution Segment
Quarterly revenues were $75.1 million, reflecting a significant drop of 56.3% year over year. Adjusted OIBDA was a negative $3.8 million compared with $14.6 million in the prior-year quarter. Operating income was a negative $5.2 million against $13.5 million in the year-ago quarter. Total IFT was $40.9 million, up by a whopping 56.1% year over year.
Starz Animation Segment
Quarterly revenues were $7.2 million, up 9.1% year over year. Adjusted OIBDA was a negative $0.8 million compared with a negative $0.7 million in the prior-year quarter.
As of Jun 30, 2014, consolidated Starz had 55.9 million subscribers, of which the STARZ division accounted for 22 million subscribers while ENCORE registered 33.9 million subscribers. In the reported quarter, STARZ added 100,000 subscribers whereas ENCORE lost 500,000 subscribers.
Other Stocks to Consider
Starz currently sports a Zacks Rank #3 (Hold). Other better-ranked stocks in the Broadcast TV/Radio industry include CTC Media Inc. , Gray Television Inc. (GTN - Free Report) and Media General Inc. (MEG - Free Report) . All three stocks currently carry a Zacks Rank #2 (Buy).