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Mixed 3Q for CBS

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CBS Corporation (CBS - Free Report) posted third-quarter 2012 adjusted earnings of 65 cents a share, surpassing the Zacks Consensus Estimate of 60 cents and jumped 30% from the year-ago quarter as healthy top line performance and rise in operating income boosted the quarterly earnings. Including one time items, earnings came in at 60 cents, up 20% year over year.

Total revenue came in at $3,418 million, up 1.6% from the prior-year quarter, reflecting increased revenues from affiliate and subscription fee along with strong performance from content licensing and distribution. However, the reported revenue fell short of the Zacks Consensus Estimate of $3,503 million.

Revenues from content licensing and distribution surged 8% year over year to $931 million, while affiliate and subscription fees marked an increase of 12% to $496 million. However, advertising revenue declined 3% to $1,931 million during the quarter.

CBS remains well positioned to drive revenue growth in the coming quarters through its strategic initiatives and operating efficiencies. Management remains optimistic and expects growth momentum to continue, based on reverse compensation from affiliates, strong demand of its content and streaming and retransmission consent.

Revenues from retransmission continue to grow at a brisk pace. Further, the company is increasingly getting reverse compensation from its affiliates, marking a new source of revenue.

Operating income before depreciation and amortization (OIBDA) increased 7% to $898 million, whereas OIBDA margin expanded approximately 100 basis points to 26%.

Segment Details

Content Group revenue, comprising Entertainment, Cable Networks and Publishing, augmented 2.4% to $2,326 million.

Entertainment revenue rose 3% to $1,680 million from the year-ago quarter, reflecting increased retransmission revenues along with a rise in domestic and international television license fees. However, segment’s OIBDA dipped 5% to $384 million due to adverse revenue mix and increased costs.

Growth in subscriptions rates at Showtime Networks, CBS Sports Network and Smithsonian Networks supplemented Cable Networks revenue to mark an elevation of 4% to $436 million. Moreover, increased affiliate revenues helped segment’s OIBDA to increase by 12% to $227 million.

Publishing revenue declined 5% to $210 million, as lower sales of print books more than offset the increased sales of digital books. However, high margin digital books sales led to a 2.6% increase in the segment’s OIBDA to $39 million.

Local Group revenue, including Local Broadcasting and Outdoor, came in at $1,147 million, up 1.2% from the prior-year quarter.

Local Broadcasting revenue inched up 1% to $661 million from the year-ago quarter. Television Stations revenue jumped 7% on the back of higher political advertising, as well as increase in retransmission revenue. However, CBS Radio revenue fell 5% during the quarter. The segments’ adjusted OIBDA increased 16% to $213 million on account of lower costs associated with programming and production as well as music royalty.

Outdoor revenue strengthened 2% to $486 million. Revenue for the Americas inched up 1% in constant currency portraying growth in the U.S. billboards and display businesses. Revenue for Europe grew 16% in constant currency, mirroring increases in advertising revenue related to the 2012 Summer Olympics in London. Outdoor OIBDA surged 24% to $99 million.

Other Financial Details

CBS Corporation ended the quarter with cash and cash equivalents of $947 million, long-term debt of $5,907 million, and shareholders’ equity of $10,289 million. The company generated cash flow from operations of $222 million and incurred capital expenditures of $59 million, resulting in free cash flow of $163 million.

During the quarter, the company bought back 8.6 million shares at an aggregate price of $300 million. Since the commencement of the program, through September 30, 2012, CBS Corporation has bought back 69.2 million shares at an average price of about $27 per share, totaling $1.89 billion.

In a strategic move to reduce interest outflow, CBS Corporation refinanced its debt during the second quarter. The company announced the offering and redemption of debt, simultaneously. The company anticipates these measures to lead to annual interest savings of $53 million.

Currently, we have a long-term ‘Neutral’ recommendation on the stock. However, CBS Corporation, which competes with News Corporation (NWSA - Free Report) and Walt Disney Company (DIS - Free Report) , holds a Zacks #3 Rank that translates into a short-term ‘Hold’ rating.

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