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CBS Corp (CBS) Q4 Earnings Rise on Licensing Business Growth

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CBS Corporation (CBS - Free Report) posted fourth-quarter 2017 adjusted earnings of $1.20 per share, up 8% from the year-ago quarter. The bottom line improved owing to a decline in weighted average shares outstanding as the company retired shares on the split-off of CBS Radio and share buyback program.

On a reported basis, the company delivered earnings from continuing operation of 10 cents a share down from 63 cents in the prior-year period.

Moreover, total revenues of this diversified media conglomerate came in at $3,921 million, up 11% year over year. Sharp gains in revenues were driven by rise in content licensing and distribution, and affiliate and subscription fee revenues.

Further, affiliate and subscription fee revenues of $923 million grew 20% on the back of 31% jump in retransmission revenues, rise in fees from CBS Television Network affiliated stations and digital subscription services. Content licensing and distribution revenues also surged 33% to $1,191 million owing to robust growth from domestic as well as international licensing sales. However, total advertising revenues decreased 3% to $1,745 primarily due to decline in political advertising sales.

Despite year-over-year rise in top and bottom line, not much movement was witnessed in after-hours trading on Feb 15. However, the company’s shares have declined 13.6% in the past six months against the industry’s gain of 4.5%. 

While adjusted operating income inched up 1% to $739 million, operating margin contracted 200 basis points to 18.8%.

CBS Corporation Price, Consensus and EPS Surprise

Segmental Details

Entertainment revenues increased 18% to $2,818 million, primarily owing to rise in content licensing and distribution revenues, and affiliate and subscription fees. Affiliate and subscription fees surged 40% on account of rise in station affiliation fees, subscriber growth at CBS All Access and gain from digital efforts. Content licensing and distribution revenues rose 38% driven by domestic and licensing sales. Advertising revenues were up 4% owing to addition of Network Ten, a leading broadcast networks in Australia. The segment’s operating income increased 25% to $465 million.

Cable Networks’ revenues were up 9% to $547 million, primarily on an improved Showtime digital streaming subscription offering as well as licensing of Showtime content. However, the segment’s operating income decreased 3% to $201 million, mainly due to investment in programming.

Publishing revenues of $235 million improved 12% year over year, primarily on rising print book and digital audio sales. Notably, bestselling titles in the quarter were Leonardo da Vinci by Walter Isaacson, Principles by Ray Dalio and It by Stephen King. Operating income came in at $44 million, up from $36 million in the year-ago period owing to higher revenues.

Local Media revenues were down 14% to $450 million as the company benefited from robust political adverting sales in the year-ago quarter. Nevertheless, the decline was to some extent mitigated by increase in retransmission revenues. Operating income also declined 37% to $216 million.

Other Financial Details

CBS, which shares space with Twenty-First Century Fox, Inc. (FOXA - Free Report) , ended the quarter with cash and cash equivalents of $285 million, long-term debt of $9,464 million and shareholders’ equity of $1,978 million. While net cash flow used by operating activities was $100 million, capital expenditures incurred were $73 million. The company reported free cash flow of $102 million.

In the quarter under review, CBS bought back 34.1 million shares that include shares retired due to the split-off of CBS Radio.

Bottom Line

The company aims to achieve $2.5 billion of revenues from retransmission and reverse compensation by 2020. Meanwhile, the company has garnered $4 billion in network advertising revenues (excluding Super Bowl) in the past five years, which is expected to continue this year as well.

Furthermore, affiliate and subscription fees are benefiting from CBS All Access and Showtime OTT. In fact, it subscriber base has reached 5 million. The company has the target of reaching 8 million subscribers base together by 2020. Management now intends to expand CBS All Access in international market, which will be initiated from Canada in the first half of 2018.

CBS is also gradually expanding its Showtime brand overseas with new deals to license the company’s entire portfolio in India, Hong Kong, France, Taiwan and others.

Looking for Hot Media Stocks? Check These

CBS carries a Zacks Rank #3 (Hold). Some better-ranked stocks from the same space are The Walt Disney Company (DIS - Free Report) and Time Warner Inc. (TWX - Free Report) . Both the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Disney’s earnings have surpassed the Zacks Consensus Estimate in the trailing three out of four quarters, with an average beat of 4.7%.

Time Warner has an impressive long-term earnings growth rate of 9.8%.

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