A month has gone by since the last earnings report for CBS (CBS - Free Report) . Shares have lost about 4.4% in that time frame, outperforming 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 catalysts.
Broadcast of Popular Games, Subscriber Growth Aided CBS Q1 Results
CBS Corporation delivered first-quarter 2019 adjusted earnings of $1.37 per share that increased 2% from the year-ago quarter. However, the figure missed the Zacks Consensus Estimate by a penny.
Revenues increased 10.8% from the year-ago quarter to $4.17 billion attributable to the success of Super Bowl LIII. However, the figure missed the consensus mark of $4.3 billion.
Entertainment revenues (76.2% of total revenues) increased 15.4% year over year to $3.18 billion. Additionally, affiliate and subscription fee revenues grew 26% year over year on increased revenues from station affiliation fees and virtual MVPDs and growth in CBS All Access subscribers.
Notably, the company’s direct-to-consumer (DTC) subscribers grew 71% year over year.
Moreover, content licensing and distribution revenues increased 3% year over year, due to higher sales of series produced for third-party services.
Cable Networks’ revenues (13.2%) decreased 3% to $552 million. The decrease was due to lack of renewal of Dexter in first-quarter 2019, offset by increased revenues from the boxing pay-per-view event and growth in Showtime offerings.
Publishing revenues (3.9%) of $164 million increased 3% due to higher print book sales. The bestselling titles in first-quarter 2019 were Supermarket and Five Feet Apart.
Local Media revenues (11%) climbed 10% to $457 million primarily due to higher retransmission fees and increased advertising revenues due to the broadcast of Super Bowl LIII.
Advertising revenues (49.1% of total revenues) increased 17.9% from the year-ago quarter to $2.04 billion owing to broadcast of Super Bowl LIII. Additionally, CBS Network advertising revenues are up 1% year over year.
Content licensing & distribution revenues (23.1%) were down 3.2% to $963 million due to lack of renewal of Dexter in first-quarter 2019. Affiliate and subscription fee revenues (26.7%) increased 13.5% year over year to $1.11 billion.
In the first quarter, adjusted operating income increased 1.5% from the year-ago quarter to $793 million due to increased revenues offset by higher programming costs and increased investments in DTC services. However, operating margin contracted 170 basis points (bps) to 19%.
Segment wise, Local Media operating income increased 17% year over year to $138 million due to higher revenue growth. Publishing increased 6% to $17 million due to higher revenues generated.
Entertainment operating income increased 9% year over year to $530 million due to higher revenues generated but was offset by increase in costs due to growth and expansion of DTC services as well higher investments in premium content.
However, Cable Networks operating income decreased 26% year over year to $175 million due to lower revenues generated, increased investments in programming and higher advertising and marketing costs.
Balance Sheet & Cash Flow Details
As of Mar 31, 2019, cash and cash equivalents were $500 million compared with $322 million as of Dec 31, 2018. Long-term debt was $9.36 billion compared with $9.47 billion from the prior quarter.
Operating cash flow in the quarter was $438 million, down from $717 million in the year-ago period. Free cash flow was $411 million, down from $687 million in the year-ago period due to higher investments in content and DTC services.
CBS stated that it is witnessing growth in subscribers across traditional MVPDs, virtual MVPDs and direct-to-consumer services at a time when its peers are losing subscribers. Moreover, strength of CBS’s content is evident from the fact that it is producing 80 series for about 15 broadcast cable and streaming outlets.
Notably, big names like Amazon, Apple and Netflix are increasingly buying content from the company including its series Dead to Me that will be available on Netflix from tomorrow. This is expected to boost licensing revenue for CBS.
CBS plans to invest more than $8 billion in programming in 2019.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
At this time, CBS has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile 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 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.