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CBS Corp. (CBS) Beats Earnings & Revenue Estimates in Q3

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CBS Corporation (CBS - Free Report) , which is in the process of separating its radio business, continued with its positive earnings surprise streak for the seventh straight quarter, as it reported third-quarter 2016 results. The company’s adjusted earnings of $1.05 per share beat the Zacks Consensus Estimate of 98 cents and jumped 19% from 88 cents reported in the year-ago quarter.

Moreover, total revenue of this diversified media conglomerate rose 4% to $3,396 million and came ahead of the Zacks Consensus Estimate of $3,313.5 million, thus marking the fourth successive quarter of revenue beat. The top line benefited from a 6% rise in content licensing and distribution revenues due to increase in domestic television licensing sales. Further, a 32% surge in retransmission revenues and fees from CBS Television Network affiliated stations and revenue growth from digital distribution platforms aided revenue growth.

Total affiliate and subscription fees grew 13% to $753 million. Total advertising revenue edged down 0.8% to $1,469 million due to 10 hours of primetime preemptions for Republican and Democratic conventions and the first Presidential election debate along with competition from the Summer Olympics. However, increased political spending benefited the advertising. Nevertheless, management hinted that advertising is gaining momentum in the fourth quarter on the back of new upfront pricing and increased political spending.

Operating income jumped 6% to $798 million attributable to increased revenue, partly offset by higher investment in programming. Operating margin came in at 23.5% in comparison to 23.1% in the prior-year quarter.

Segment wise, Entertainment revenue inched up 1% to $1,949 million. Affiliate and subscription fees surged 39% on account of a rise in station affiliation fees and subscription growth for CBS All Access. However, network advertising revenue declined 2%. Content licensing and distributions revenue decreased 3% year over year. However, growth in domestic streaming revenue partially offset the same.

The segment’s operating income increased 3% to $348 million, primarily driven by growth in revenues.

Cable Networks’ revenue climbed 14% to $598 million, attributable to a rise in revenue from the domestic licensing of Showtime original series, including Penny Dreadful as well as growth from Showtime Networks' over-the-top streaming service.

The segment’s operating income increased 16% to $285 million, mainly due to an increase in revenue, partly neutralized by higher investment in original series.

Publishing revenue of $226 million went up 11% year over year owing to higher sales of both print and digital book, comprising some bestselling titles like Born to Run and The Girl with the Lower Back Tattoo. Digital revenue now accounts for 23% of Publishing's total revenue. Operating income came in at $44 million, up from $43 million in the year-ago period, as revenue growth was to a large extent offset by increased production and selling costs.

Local Media (CBS Television Stations) revenue grew 9% to $409 million, reflecting higher retransmission revenue and increased political advertising sales on account of Presidential elections. Operating income advanced 21% to $122 million mainly due to higher revenue.

Radio revenue came in at $319 million compared with $318 million in the year-ago period, as higher national advertising sales, were counteracted by a fall in local advertising sales. Operating income increased 5% to $77 million on account of lower expenses.

For fourth-quarter 2016, Local Media is pacing to be up mid-to-high teens, while Radio is gearing up low-single digits.

CBS CORP Price and EPS Surprise

CBS CORP Price and EPS Surprise | CBS CORP Quote

Other Financial Details

CBS Corp., which shares space with Twenty-First Century Fox, Inc. (FOXA - Free Report) , ended the quarter with cash and cash equivalents of $179 million, long-term debt of $8,902 million and shareholders’ equity of $5,348 million. In the quarter, the company generated cash flow from operations of $55 million and incurred capital expenditures of $46 million, thereby resulting in free cash flow of $9 million.

During the quarter under review, CBS Corp. bought back 9.5 million Class B shares for $500 million. In the first nine months of 2016, the company bought back 29 million Class B shares for $1.50 billion, at a price of $51.76 per share.

Bottom Line

Due to an increase in political spending, CBS Corp. expects advertising to improve further. Moreover, the company highlighted that its non-advertising revenue is improving rapidly. The company anticipates crossing the $1 billion mark in revenues from retransmission consent and reverse compensation in 2016. Management expects revenues to increase further with 21% of retransmission and 14% of reverse compensation set for renewal in 2017.

Moreover, with the launch of Showtime's streaming service; online news channel, CBSN; and over-the-top service, CBS All Access, the company is generating incremental revenue. The company is extending its Showtime brand, which is now available in Spain, Canada, Australia and several key European markets.

CBS Corp has come up with a new commercial-free subscription for its over-the-top service. This ad-free model to watch CBS All Access's on-demand shows can be availed at $9.99 per month, $4 higher than the present subscription service, inclusive of commercials. The company informed that subscribers will be able to view CBS All Access's on-demand library of over 7,500 episodes.

The new commercial-free content will include the entire current seasons of primetime hits like Big Brother, Blue Bloods, Madam Secretary and The Odd Couple. Moreover, the CBS All Access's upcoming original series, which comprises the next chapter of the legendary "Star Trek" TV franchise, Star Trek: Discovery, a spinoff of "The Good Wife" and a new digital edition of "Big Brother" will also be accessible without commercials under the new plan.

Zacks Rank

CBS Corp. currently carries a Zacks Rank #3 (Hold). Better-ranked stocks include Nexstar Broadcasting Group, Inc. (NXST - Free Report) , sporting a Zacks Rank #1 (Strong Buy) and The Liberty Media Group , carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Nexstar Broadcasting Group has a long-term earnings growth rate of 6.5%.

The Liberty Media Group shares have increased 42% over the past six months.

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