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Viacom (VIAB) Q3 Earnings Beat Estimates, Revenues Down Y/Y

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Viacom Inc. (VIAB - Free Report) reported third-quarter fiscal 2018 earnings of $1.18 per share that beat Zacks Consensus Estimate by 11 cents and increased 0.8% year over year.

However, revenues of $3.24 billion lagged the Zacks Consensus Estimate of $3.27 billion and declined 4% year over year.

Adjusted operating income declined 4.7% from the year-ago quarter to $767 million.

Media Networks Details

Media Networks revenues were $2.50 billion, down 2% year over year. Affiliate and advertising revenues declined 3% and 4% year over year to $1.15 billion and $1.19 billion, respectively. However, ancillary revenues increased 17% to $158 million.

Domestic and international revenues declined 2% each year over year to $1.99 billion and $509 million, respectively.
 

Viacom Inc. Price, Consensus and EPS Surprise

Viacom Inc. Price, Consensus and EPS Surprise | Viacom Inc. Quote

 

Domestic advertising revenues decreased 3% to $922 million, reflecting lower linear impressions. This was partially offset by higher pricing and 33% growth in Advanced Marketing Solutions revenues.

International advertising revenues decreased 4% to $269 million, driven by an unfavorable impact from foreign exchange.

Domestic affiliate revenues decreased 3% year over year to $978 million. International affiliate revenues declined 2% to $175 million.

Domestic ancillary revenues increased 31% to $93 million, driven by higher revenues from live events and consumer products. International ancillary revenues increased 2% to $65 million.

Media Networks adjusted operating income decreased 8% to $799 million, primarily reflecting lower segment revenues.

Viacom continues to hold the top share of basic U.S. cable viewing among key demographics.

Management stated that MTV was the fastest growing network in primetime among the top 50 broadcast and cable channels in the Adults 18-34 demo for the quarter. The second season premiere of Floribama Shore in July 2018 had nearly 1 million viewers, with ratings up in double digits from its series debut.

The premiere week of Nickelodeon’s Double Dare averaged 1.4 million viewers, making it the most-watched series debut on kids’ TV so far in 2018. Moreover, Paramount Networks’ Yellowstone was the most watched scripted cable series of 2018 after The Walking Dead, with an average audience of approximately 4.4 million viewers in Live+3.

Viacom Digital Studios content continues to gain in terms of total video views and watch time that increased 112% and 104% year over year, respectively. Moreover, since its launch in May 2018 on Amazon (AMZN - Free Report) Prime Video Channels, Nick’s Noggin app has reported significant subscriber growth.

Meanwhile, Viacom has secured distribution of its leading brands on the new AT&T (T - Free Report) Watch entertainment-only skinny bundle service.

Additionally, the newly launched Viacom International Studios (VIS) is already producing shows for Netflix (NFLX - Free Report) , Amazon, Telemundo and Fox, among others.

Further, Nickelodeon delivered animated series Pinky Malinky, first show produced under a multi-year partnership with Netflix.

Filmed Entertainment Details

Filmed Entertainment revenues decreased 9% year over year to $772 million. Domestic revenues increased 20% to $464 million, while international revenues declined 33% to $308 million.

Theatrical revenues of $208 million were down 21% due to lower carryover revenues. Domestic theatrical revenues grew 58%, driven by the strong performance of A Quiet Place and Book Club. However, international theatrical revenues plunged 58% from the year-ago quarter, which benefited from the release of Transformers: The Last Knight and Ghost in the Shell.

Licensing revenues increased 35% year over year to $404 million, substantially benefiting from Paramount Television content, including the second season of 13 Reasons Why. Moreover, The Alienist, which Paramount produced for TNT, received six Emmy nominations including Outstanding Limited Series.

Domestic licensing revenues surged 122%, while international licensing revenues declined 8%.

Home entertainment revenues declined 45% year over year to $119 million, reflecting unfavorable mix and lower number of titles in release. Domestic and international home entertainment revenues decreased 47% and 41%, respectively.

Ancillary revenues decreased 38% from the year-ago quarter to $41 million. Domestic and international ancillary revenues were down 40% and 27%, respectively.

Filmed Entertainment reported adjusted operating income of $44 million compared with $9 million in the year-ago quarter.

Paramount was profitable in the reported quarter. The studio’s A Quiet Place collected more than $188 million domestically to date, making it the second highest grossing horror film in the United States over the past decade.

Viacom stated that the film has so far earned more than $332 million at the worldwide box office at a production cost of approximately $20 million. Released in May, Book Club has earned more than $68 million to date at the domestic box office.

Paramount’s current-quarter release Mission: Impossible - Fallout collected nearly $330 million globally in its first two weekends.

Paramount has a strong slate of new films for the fiscal 2019. The number of worldwide theatrical releases is expected to be almost double compared with fiscal 2018.

Paramount TV is expected to double its production output in 2019, and currently has 19 series ordered or in production. Notably, Amazon has already ordered a second season of Tom Clancy’s Jack Ryan, which premieres in August 2018.

Balance Sheet & Cash Flow

As of Jun 30, 2018, cash and cash equivalents were $929 million. Long term debt was $10.07 billion.

Viacom has reduced debt by almost $3 billion or 23% since announcing plans to de-lever in February 2017.

Net cash provided by operating activities was $698 million at the end of the quarter. Free cash flow was $660 million.

Outlook

For the fourth quarter, Viacom expects growth in revenues and adjusted operating income. Adjusted earnings are expected to grow mid-to-high teens range.

Currently, Viacom carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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