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CBS (CBS) Down 7.4% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for CBS (CBS - Free Report) . Shares have lost about 7.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is CBS 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 drivers.

CBS Q3 Results Benefit From Higher Retransmission Revenues

CBS Corporation delivered third-quarter 2018 adjusted earnings of $1.24 per share that beat the Zacks Consensus Estimate by 2 cents per share and increased 11.7% from the year-ago quarter.

Revenues increased 2.9% from the year-ago quarter to $3.26 billion and beat the consensus mark of $3.25 billion.

Revenues by Type

Advertising revenues increased 14.2% from the year-ago quarter to $1.26 billion. Growth was driven by Network Ten, which the company acquired in fourth-quarter 2017, along with higher political advertising sales.

Content licensing & distribution revenues were up 8.5% to $933 million. Higher contribution from “additional series produced for third-party services” and international licensing boosted year-over-year growth.

Further, affiliate and subscription fee revenues of $1.01 billion declined 12% year over year. The decline can be attributed to the absence of “Mayweather/McGregor pay-per-view boxing event” in third-quarter 2018. A surge in retransmission revenues and fees, increased revenues from digital initiatives, including CBS All Access and virtual multichannel video programming distributor (MVPDs) led to overall growth of affiliate and subscription fee revenues.

Segment Details

Entertainment revenues increased 18.5% to $2.2 billion, driven by higher affiliate and subscription fee revenues (up 32%), content licensing and distribution revenues (up 16%) and advertising revenues (up 16%).

CBS gained from newly launched Sports HQ. Notably, the company is making more shows and selling more content to third-party distributors as demand for programs is on rise.

CBS’ ad-based OTT services led by CBSN, its digital news network, has been attracting younger viewers and adding to the company’s top line. The company continues to expand CBSN presence on virtual MVPDs, including its deal with Hulu to provide it as a standalone channel.
Cable Networks’ revenues were down 32.3% to $569 million primarily due to absence of “Floyd Mayweather/Conor McGregor pay-per-view” boxing event in third-quarter 2018. The timing of international licensing sales was also the reason for the decline. However, Showtime has more than 26 million subscribers in the quarter and subscribers are expected to grow on the back of distribution deal with the likes of Spotify.

Publishing revenues of $240 million grew 5.3% on the back of higher print book sales and digital audio sales. Notably, Fear sold more than 1.1 million copies in its first week higher than any title in Simon & Schuster's history. The bestselling titles were Fear: Trump in the White House and Whiskey in a Teacup.

Local Media revenues climbed 9.3% to $434 million primarily due to higher retransmission revenues and advertising revenues. Higher political advertising sales ahead of the U.S. mid-term elections led to higher advertising revenues.

Operating Details

In the third quarter, adjusted operating income increased 1% from the year-ago quarter to $736 million. Operating margin contracted 40 basis points (bps) to 22.6%, reflecting higher investment in programming and digital initiatives.

Segment wise, Entertainment operating income increased 7.7% year over year to $377 million, primarily driven by higher revenues. Publishing increased 8.5% to $51 million due to premium content. Local Media operating income increased 17% year over year to $124 million.

However, Cable Networks operating income decreased 16.2% year over year to $248 million due to increased investments in programming.

Balance Sheet & Cash Flow Details

As of Sep 30, cash and cash equivalents were $182 million compared with $252 million as of Jun 30. Long-term debt was $9.47 billion, up from $9.46 billion at the end of the previous quarter.

Cash flow from operating activities was $137 million while free cash flow was $97 million.

In the quarter under review, CBS bought back 1.8 million shares for $100 million.


For fiscal 2018, CBS expects Local Media revenues in the high teens. Retrans and reverse comp revenues are expected to exceed $1.6 billion.

CBS All Access and Showtime OTT are expected to have a combined 8 million subscribers by the end of 2019, a year before the initial target of 2019 on the back of growing investments in content.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

At this time, CBS has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

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


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

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