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AMC Networks (AMCX) Q2 Earnings Lag Estimates, Revenues Beat

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AMC Networks Inc. (AMCX - Free Report) reported second-quarter 2018 adjusted earnings of $1.93 per share, which increased 2.7% from the year-ago quarter. However, the figure missed the Zacks Consensus Estimate of $1.97.

Revenues of $761.4 million surpassed the Zacks Consensus Estimate of $731 million. The figure also increased 7.2% year over year.

The top line was positively impacted by the $30 million contribution from the acquisition of Levity Entertainment Group that the company completed on Apr 20, 2018. Levity is involved in developing formats for subscription video-on-demand, broadcast pay-TV and linear cable by bringing together comedians. Hence, the buyout is proving to be accretive for the company’s comedy oriented IFC channel.

Management remains optimistic about quality content creation while attracting new and experienced talent, offering the content at a lucrative “wholesale rate” as well as diversification of the business.

Revenue Details

During second-quarter 2018, total subscribers increased 2% on a year-over-year basis.

Revenues from National Networks segment increased 3.7% from the year-ago period to $627.3 million.

Distribution revenues increased 5.8% year over year to $380 million on the back of improved content licensing revenues as well as subscription revenues.

Advertising revenues increased 0.6% year over year to $247 million, gaining from higher pricing that was slightly muted by lower delivery.

International and Other segment revenues surged 32.4% year over year to $146.7 million. The positive impact of the revenue contribution from the Levity acquisition was partially offset by the “absence of AMCNI-DMC, the Company’s Amsterdam-based media logistics facility which was sold in July 2017.”

Management is positive about the impressive performance of Killing Eve, BBC AMERICA’s original series. The show’s writer, creator, Phoebe Waller-Bridge and lead actress, Sandra Oh received Emmy nominations in the previous month, bringing it into limelight.

The company’s position as an independent programmer, to be carried by Virtual Multichannel Video Programming Distributor (MVPD), has been strengthened with its recent launch on AT&T's (T - Free Report) new watch service.

AMC Networks Inc. Price, Consensus and EPS Surprise

AMC Networks Inc. Price, Consensus and EPS Surprise | AMC Networks Inc. Quote

Operational Details

Adjusted operating income of National Networks increased 1.1% year over year to $234.7 million. The increase in revenues was partially offset by an increase in programming expenses. Adjusted operating margin decreased 100 basis points (bps) to 37.4%.

Adjusted operating income of International and Other segment improved from $1 million to $5.4 million. Though the expenses increased due to the acquisition of Levity, it was more than compensated by the “absence of impairment and related charges of $17 million” incurred in the year-ago quarter. Adjusted operating margin increased 280 bps to 3.7%.

Overall adjusted operating income increased 1.9% to $232.9 million. Adjusted operating margin decreased 160 bps to 30.6%.

Balance Sheet & Cash Flow

In the quarter ended Jun 30, 2018, cash and cash equivalents were $416.1 million. Net debt was $2.734 billion.

Cash from operating activities was $162 million while free cash flow was $131 million.

The company repurchased 3 million shares worth $159 million.

Recent Announcements

AMC Networks has signed a definitive agreement to acquire RLJ Entertainment for $65 million or $6.25 per share in cash.

The acquisition is expected to aid the company in its initiatives toward strengthening its ad-free direct-to-consumer businesses. The target’s “growing Acorn TV and UMC SVOD services, and content ownership” are anticipated to be the relevant drivers.

Guidance

Considering the positive impact of the Levity acquisition, the company raised its full-year 2018 revenue guidance.

Management now expects revenues to grow in mid-single digits compared with the previous expectation of low single-digit growth.

However, adjusted operating income is still expected to grow at a low single digit, with Levity’s contribution being around 1%.

Zacks Rank & Stocks to Consider

AMC Networks currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector include Micron Technology (MU - Free Report) and Amazon.com, Inc. (AMZN - Free Report) , both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.

Long-term earnings growth rate for Micron and Amazon is projected to be 8.2% and 26.5%, respectively.

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