It has been about a month since the last earnings report for CBS Corporation (CBS - Free Report) . Shares have added about 3.3% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is CBS due for a pullback? 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 drivers.
CBS delivered first-quarter 2018 adjusted earnings of $1.34 per share that beat the Zacks Consensus Estimate by 15 cents and jumped 28.8% from the year-ago quarter.
Revenues increased 12.5% from the year-ago quarter to $3.76 billion and comfortably surpassed the consensus mark of $3.63 billion.
Strong growth was driven by strong advertising (46.1% of revenues), content licensing & distribution (26.5% of revenues) and affiliate and subscription fee revenues (26% of revenues).
Revenues by Type
Advertising revenues (46.1%) increased 8% from the year-ago quarter to $1.73 billion. Growth was driven by Network Ten in Australia as well as a solid performance at the CBS Television Network.
Non-advertising revenues (53.9%) jumped 16.6% in the reported quarter.
Content licensing & distribution revenues were up 17.8% to $995 million. Higher contribution from the international licensing of new series as well as the start of renewal periods for licenses of library programming drove year-over-year growth.
Further, affiliate and subscription fee revenues of $979 million grew 16.3% year over year on the back of 25% higher retransmission revenues and fees from CBS Television Network affiliated stations. Revenues from skinny bundles and CBS’ direct-to-consumer services nearly doubled in the quarter.
Entertainment revenues (72.2% of revenues) increased 15.7% to $2.72 billion driven by higher affiliate and subscription fee revenues (surged 39%), content licensing and distribution revenues (up 16%) and advertising revenues (up 11%).
CBS Network advertising revenues inched up 1% from the year-ago quarter. The company launched CBS Sports HQ and expanded CBS All Access into Canada.
Cable Networks’ revenues (16.2% of revenues) were up 12.2% to $609 million primarily due to growth of the Showtime subscription streaming service and the start of the renewal period for the licensing of Showtime original series.
CBS added one million more subscribers driven by increase in both traditional and direct-to-consumer distribution platforms. Management stated that CBS have added more than 100 hours of Showtime original programming, including the four hit series that premiered in the reported quarter.
Publishing revenues (4.3% of revenues) of $160 million dipped 0.6% year over year. Bestselling titles were I’ve Got My Eyes On You by Mary Higgins Clark and The Last Black Unicorn by Tiffany Haddish. Digital audio surged 43% in the first quarter.
Local Media revenues (11% of revenues) climbed 1.5% to $415 million primarily due to higher retransmission revenues. At CBS’s top 10 markets, revenues were up 4%.
In the first quarter, operating income increased 7.6% from the year-ago quarter to $781 million. Operating margin contracted 100 basis points (bps) to 20.8% reflecting higher investment in programming and digital initiatives.
Segment wise, Entertainment operating income jumped 22.1% year over year to $492 million primarily driven by higher revenues. Publishing increased 6.7% to $16 million due to favorable revenue mix that reduced operating expenses.
However, Cable Networks and Local Media operating income declined 8% and 6.7% to $230 million and $118 million, respectively.
Cable Networks operating income declined due to higher investment in programming, including the launch of two new hit series, The Chi and Our Cartoon President, on Showtime in the reported quarter.
Local Media profitability was negatively impacted by unfavorable revenue mix.
Balance Sheet & Cash Flow Details
As of Mar 31, 2018, cash and cash equivalents were $147 million as compared with $285 million as of Dec 31, 2017. Long-term debt was $9.47 billion down from $9.46 billion at the end of previous quarter.
Cash flow from operating activities was $717 million, while free cash flow was $687 million.
In the quarter under review, CBS bought back 3.8 million shares for $200 million. The company had $2.9 billion remaining under its current repurchase program.
For the second quarter, CBS expects Local Media revenues increase at low to mid-single digits rate. Scatter pricing at the network remains extremely strong.
Advertising is expected to do well in the second-half of 2018, driven by midterm elections.
CBS reiterated revenue target of $2.5 billion for 2020.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There have been three revisions higher for the current quarter compared to 19 lower.
At this time, CBS has a nice Growth Score of B, though it is lagging a bit on the momentum front with a C. 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 growth and to a lesser degree momentum.
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Interestingly, CBS has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.