CBS Posts Record Earnings in Q2
CBS Corporation (CBS) came up with strong second-quarter 2013 results as the company posted the highest ever quarterly profits in its history. The quarterly earnings of 76 cents a share comfortably surpassed the Zacks Consensus Estimate of 72 cents and jumped 12% year over year.
Higher licensing and affiliate income boosted the quarterly profits. Moreover, lower interest expenses and share buybacks cushioned the bottom line.
Total revenue of $3,699 million for the quarter handily surpassed the Zacks Consensus Estimate of $3,512 million and increased 11% from the prior-year quarter, reflecting a 4.8% rise in advertising revenue to $2,090 million, a 22.2% jump in content licensing and distribution revenue to $997 million and an 18.1% increase in affiliate and subscription fees to $549 million.
Operating income before depreciation and amortization (:OIBDA) increased 4.5% to $952 million. However, OIBDA margin contracted approximately 160 basis points to 25.7%.
Segment Details
Content Group revenue, comprising Entertainment, Cable Networks and Publishing, increased 15.9% to $2,715 million, reflecting strong performance of the Entertainment and Cable Networks division.
Entertainment revenue rose 17.6% to $2,008 million from the year-ago quarter, reflecting increase in licensing and international syndication revenue coupled with higher advertising and network affiliation revenue. Segments OIBDA inched up 1% to $429 million as strong revenue growth was offset by the company’s increased investment in content and rise in sports programming costs.
Growth in licensing revenue and higher affiliate revenue supplemented Cable Networks revenue to mark an elevation of 16.1% to $518 million. Moreover, growth in cable networks revenue helped the segment’s OIBDA to increase by 9% to $207 million, partly offset by a rise in sports programming costs coupled with higher promotional expenses.
Publishing revenue remained flat at $189 million, as lower sales of print books offset the increased sales of digital books. Digital book sales surged 39% during the quarter. Segment’s OIBDA more than doubled to $21 million compared with $9 million in the year-ago quarter. The increase reflected a rise in sales of high margin digital books.
Local Group revenue, including Local Broadcasting and Outdoor, came in at $1,033 million, marginally below the prior-year quarter’s revenue of $1,038 million.
Local Broadcasting revenue decreased marginally to $698 million. CBS Television Stations revenue decreased 1% on account of lower political advertising revenues, whereas CBS Radio revenue remained flat during the quarter. The segments’ OIBDA increased 3% to $255 million due to lower programming and production costs.
Outdoor Americas revenue remained almost flat at $335 million as growth in the U.S. was offset by revenue declines in Mexico and Canada. Outdoor Americas’ OIBDA increased 4% to $107 million during the quarter.
Earlier, the company announced that Platinum Equity has made an offer to buy assets of its CBS Outdoor International business for about $225 million. Moreover, the company decided to convert its CBS Outdoor operations in North America and South America into a real estate investment trust (“REIT”) and divest its Outdoor businesses in Europe and Asia.
Other Financial Details
CBS Corporation ended the quarter with cash and cash equivalents of $282 million, long-term debt of $5,949 million, and shareholders’ equity of $9,601 million. The company generated cash flow from operations of $464 million and incurred capital expenditures of $49 million. Free cash flow of $414 million was generated during the quarter.
The company extended its current share repurchase authorization to a total of $6 billion as it enhanced the share repurchase program by an additional $5.1 billion. Since the inception of the share repurchase plan in Jan 2011, the company bought back $3.75 billion worth of shares. Alongside, CBS Corporation announced a quarterly dividend of 12 cents a share to be paid on Oct 1, 2013, to shareholders of record as of Sep 10.
Our Recommendation
CBS Corporation is poised to benefit from its strategic expansion initiatives. We remain optimistic on this Zacks Rank #2 (Buy) stock and expect its growth momentum to continue in 2013 based on reverse compensation from affiliates, strong demand of its content, digital distribution, syndication sales and retransmission consent. CBS is eyeing around $1 billion in retransmission and reverse compensation revenue by 2017. The company also remains positive about CBS Television Network being the growth driver.
It’s important to note that the non-advertising revenue now accounts for 43% of the company’s total revenue. CBS Corporation is focused on lowering its dependency on advertising and is laying more emphasis on increasing subscription based revenue channels. This comes as a positive as advertising revenue is highly susceptible to economic headwinds.
Alongside, CBS continues to benefit from its streaming deals. Thus, the company further strengthened its ties with Netflix, Inc. (NFLX) by extending its multi-year streaming video deal for select library content. Moreover, it entered into a deal with Amazon.com Inc. (AMZN). These measures facilitate CBS in monetizing its content.
The company also acquired the remaining 50% stake in TV Guide Digital, including the TVGuide.com and TV Guide Mobile properties from Lions Gate Entertainment Corp. (LGF). The addition of TVGuide.com to CBS’ impressive portfolio is believed to be a major boost for the company’s digital business as both TVGuide.com and TV Guide Mobile enjoy a strong audience in the lucrative TV information category.
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