It has been about a month since the last earnings report for Viacom (VIAB - Free Report) . Shares have added about 0.5% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Viacom due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Robust Collections from Bumblebee Aids Viacom’s Q1 Results
Viacom reported first-quarter fiscal 2019 adjusted earnings of $1.12 per share that beat the Zacks Consensus Estimate by a dime. The figure increased 13% year over year on a constant-currency (cc) basis.
Revenues of $3.09 billion lagged the Zacks Consensus Estimate of $3.10 billion but increased 4% year over year at cc.
Operating expenses increased 7.7% to $1.68 billion. However, selling, general and administrative (SG&A) expenses decreased 7.4% to $684 million.
Adjusted operating income increased 6% at cc from the year-ago quarter to $750 million.
Media Networks Details
Media Networks revenues were almost $2.50 billion, flat year over year. At cc, Affiliate revenues increased 4%, while advertising revenues declined 2%. Consumer Products, Recreation and Live Events (previously Ancillary segment) revenues declined 10% at cc.
Domestic revenues were unchanged on a year-over-year basis at $1.93 billion. Domestic affiliate revenues were driven by higher contractual rate, and increase in OTT and studio production revenues.
Domestic advertising revenues increased sequentially, driven by 54% growth in Advanced Marketing Solutions (AMS) revenues and higher pricing.
Viacom continues to hold the top share of basic U.S. cable viewing among the 2-49, 2-11, 18-34 and 18-49 demographics in the reported quarter.
MTV accelerated its domestic ratings and expanded deeper into live events. Audience share grew more than 15% year over year among the 18-49 demography and broke a network record with six straight quarters of year-over-year primetime C3 ratings growth among 18-34 demography.
In November 2018, MTV acquired the SnowGlobe Music Festival, which drew roughly 50,000 fans to its three-day New Year’s Eve event in Lake Tahoe.
Comedy Central achieved its seventh consecutive quarter of Total Day share growth among adults 18-49, while Paramount Network share grew more than 5% year over year in this demo.
Viacom International Media Networks delivered strong viewership, with MTV and Paramount Network increasing year-over-year share by more than 11% and 7%, respectively. Telefe achieved its highest annual share in 10 years and Channel 5 produced five straight months of share growth on a year-over-year basis.
Additionally, Viacom International Studios (VIS) has become a leading global producer of original Spanish-language content within a short span of time, courtesy of partnerships with Amazon, Claro, Imagen, Mediapro and Mega.
Viacom Digital Studios (VDS) continued to grow digital consumption while expanding studio production through original content from Awesomeness.
VDS increased watch time by more than 129% year over year and grew video views by more than 65% in the quarter.
Awesomeness’ first-quarter releases included Light As a Feather on Hulu, which was recently renewed for an additional 16 episodes. The company is also producing a sequel to Netflix's hit film To All the Boys I've Loved Before.
Filmed Entertainment Details
Filmed Entertainment revenues increased 14% year over year to $621 million. Theatrical revenues of $149 million surged 49%, owing to better year-over-year box office collections from movies like Bumblebee and Instant Family.
Viacom stated that Bumblebee has grossed more than $450 million at the global box office to date.
Ancillary revenues jumped 54% to $74 million, primarily driven by license fees related to the development of two Paramount-branded theme parks in Asia.
Licensing revenues increased 3% year over year to $220 million, due to increased production from Paramount Television. The Haunting of Hill House and Season 3 of spy thriller Berlin Station were released on Netflix and Epix, respectively, in the quarter. Paramount Television revenues increased more than 84% year over year.
Notably, in November 2018, Paramount Pictures entered into an agreement with Netflix to produce original films for the streaming service. Moreover, Paramount Pictures renewed or improved Pay output deals in the U.K., Germany, Canada, Italy, India and Australia. The division also completed library deals with Amazon and Sky.
However, Home entertainment revenues declined 3% year over year to $178 million, reflecting lower DVD and Blu-ray discs sales.
Pluto TV Acquisition
On Jan 22, 2019, Viacom announced an agreement to acquire Pluto TV for $340 million. The transaction is expected to close in second-quarter fiscal 2019, pending regulatory approval.
Pluto TV offers more than 100 live linear channels and more than 5,000 hours of on-demand content, including movies, news, sports, general entertainment and digital series. It is universally available across mobile devices, desktops, streaming players and gaming consoles. The service is expected to be enabled on more than 30 million additional devices over the coming months.
As of December 2018, Pluto TV had more than 12 million monthly active users, of which 7.5 million are on connected TVs.
Viacom looks to use Pluto TV to attract and retain users for its existing subscription-based services, including Noggin and Comedy Central Now. Further, the deal enhances Viacom’s AMS business by adding billions of quality addressable ad impressions per month. Moreover, the acquisition expands Viacom’s addressable market by bringing in additional audience who are young, gender-balanced and hard to reach.
Balance Sheet & Cash Flow
As of Dec 31, 2018, gross debt outstanding was $8.96 billion, down approximately $1.1 billion from Sep 30, 2018, and approximately $4.2 billion since Viacom announced its strategy to de-lever in February 2017.
Adjusted gross debt was $8.31 billion. Viacom executed an upsized tender offer for $1.1 billion of senior notes and debentures in the quarter.
Moreover, cash and cash equivalents decreased $1 billion to $534 million.
Net cash provided by operating activities increased $216-$228 million. Free cash flow was $191 million compared with free cash outflow of $16 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 6.19% due to these changes.
Currently, Viacom has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Viacom has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.