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Viacom (VIAB) Down 12.8% Since Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Viacom Inc. (VIAB - Free Report) . Shares have lost about 12.8% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is VIAB due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Recent Earnings

Viacom reported better-than-expected results for the second quarter of fiscal 2018 (ended Mar 31, 2018), wherein both earnings per share and revenues outpaced the Zacks Consensus Estimate.

The company’s adjusted earnings from continuing operations of 92 cents per share surpassed the Zacks Consensus Estimate of 80 cents. Moreover, the bottom line expanded approximately 16.5% year-over-year.

Total revenues of $3.15 billion topped the Zacks Consensus Estimate of $3.04 billion. However, revenues decreased 3% from the year-ago quarter owing to lower revenues from Filmed Entertainment due to “fewer theatrical releases and the performance of Paramount's legacy slate.” This dampened growth of the Media Networks segment.

Quarterly adjusted operating income increased 4.7% year over year to $641 million. Viacom exited the quarter with cash and cash equivalents of $417 million, compared with $394 million at the end of the previous quarter.

Moreover, Viacom’s debt (non-current) at the end of the second quarter of fiscal 2018 was $10.1 billion, at the same level as the prior quarter.

Segmental Performance

Media Networks

Quarterly revenues for the company’s Media networks segment were $2.43 billion, up 1% year over year. The decline in domestic revenues was offset by strong growth internationally.

While domestic revenues were down 3% to $1.86 billion, international revenues surged 18% to $566 million. Foreign currency movements aided segmental results to the tune of 9%.

The segment generates revenues principally from three sources: (i) affiliate revenues (ii) advertising revenues; and (iii) ancillary revenues.

Total affiliate revenues remained flat at $1.16 billion. On the domestic front, the metric was down 4% to $934 million. Nevertheless, international affiliate revenues increased 23% to $222 million.

Total advertising revenues were $1.11 billion, flat year over year. The 11% surge in international advertising revenues to $264 million was offset by 3% decrease in domestic advertising revenues to $841 million.

Ancillary revenues increased 30% to $168 million in the quarter on the back of “consumer product, recreation and live event revenues.”

Quarterly operating income (on an adjusted basis) declined 5% to $706 million in the reported quarter, owing to higher expenses.

Filmed Entertainment

Quarterly revenues declined 17% year over year to $741 million due to weaknesses in three sub-groups.

Notably, licensing revenues increased 37% year over year to $477 million backed by the release of “The Cloverfield Paradox” and Paramount Television product, including “The Alienist.”

However, theatrical revenues were down 79%. Ancillary and home entertainment revenues declined 54% and 18%, respectively, in the reported quarter.

This segment’s adjusted operating income was $9 million in the quarter against loss of $66 million in the year-ago quarter. Decline in distribution expenses owing to lower number of theatrical releases helped the company in posting the encouraging number.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to six lower.

Viacom Inc. Price and Consensus

 

VGM Scores

At this time, VIAB has an average Growth Score of C, however its Momentum is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is primarily suitable for value investors while also being suitable for those looking for momentum and to a lesser degree growth.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, VIAB has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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