CBS Corporation’s
(CBS) continued effective operating and cost-containment efforts
helped post strong first-quarter 2011 results. The quarterly
earnings of 29 cents a share beats the Zacks Consensus Estimate of
19 cents and surged approximately six times from 5 cents earned in
the year-ago quarter.
Quarter
Highlights
Sequentially, CBS has made a
positive comeback in each quarter outshining its performances in
the previous quarters. The company indicated that the outdoor
advertising marketplace remained strong during the quarter.
Management expects growth momentum to continue in fiscal 2011 and
2012.
Buoyed by better-than-expected
results, rebounding advertisement market and surging free cash
flow, the company doubled its quarterly dividend to 10 cents a
share from 5 cents. The increased dividend will be paid on July 1,
2011to shareholders of record as of June 10, 2011.
Due to its exposure to publishing,
radio and television broadcasting, and outdoor billboard
businesses, CBS remains highly susceptible to the advertising
market. To mitigate this, the company is striving to add diverse
revenue streams to hedge against economic cycles.
CBS entered into a 14-year contract
with Turner Broadcasting to divide rights fees for the NCAA
tournament. The agreement was the part of an effort to reduce costs
and helped CBS in generating profit in the first three months of
the year.
The retransmission and affiliate
fees generated from CBS’s cable and satellite partners for
retransmitting broadcast programming have been another source of
revenue. This is evident from the company’s 10-year programming
deal with Comcast Corporation (CMCSA), the cable
operator, whereby the latter will retransmit the signals of CBS
television network, the Showtime Networks and CBS College Sports,
across its various platforms, to meet consumers’ growing demand for
TV, Video on Demand and online content.
Revenue from retransmission keeps
growing at a brisk pace making management confident of achieving
its goal of $250 million retransmission fees in fiscal 2012.
Further, the company is increasingly getting reverse compensation
from its affiliates marking a new source of revenue for it. The
company also expects reverse compensation to expand in the coming
years.
Behind the
Headline
Revenue contracted marginally by
0.6% to $3,510 million from the prior-year quarter, reflecting 3.6%
growth in content licensing and distribution revenue to $740
million, 9.7% jump in affiliate and subscription fees to $420.0
million with a 3.7% decline in advertising sales. However,
advertising revenue in the broadcast network jumped 12.0% excluding
sales related to prior year's Super Bowl and NCAA basketball
tournament.
Total revenue also came ahead of
the Zacks Consensus Estimate of $3,478 million.
Adjusted operating income before
depreciation and amortization (OIBDA) increased 64.0% to $576
million, whereas OIBDA margin expanded 600 basis points to
16.0%.
Revenue by
Segment
Content
Group revenue, which comprises Entertainment, Cable
Networks, and Publishing, inched down 2.3% to $2,542.0 million from
the year-ago quarter, reflecting a decline in entertainment
revenue, offset by a revenue growth in cable networks and
publishing.
Entertainment
revenue declined 4.2% to $1,994.0 million from the year-ago
quarter, reflecting the dearth of the Super Bowl broadcast and the
impact of the new programming agreement for the NCAA Tournament.
However, Entertainment OIBDA soared 84.8% to $268 million.
Increase of rates and growth in
subscriptions at Showtime Networks and CBS College Sports Network
helped Cable Networks revenue increase 6.8% to
$393 million. Cable Networks OIBDA rose 51.5% to $153 million.
Publishing revenue
climbed 2.0% to $155 million attributable to the increase in
digital content sales. Publishing OIBDA more than doubled to $7
million during the quarter.
Local
Group revenue, which comprises Local Broadcasting and
Outdoor, increased 3.6% to $1,034 million.
Local Broadcasting
revenue increased 2.5% to $621 million from the year-ago quarter
due to increased advertising and retransmission revenue. CBS
Television Stations advertising revenue inched up 1.0%, whereas CBS
Radio advertising revenue grew 4.0%.
Local Broadcasting OIBDA rose 26.1%
to $169 million. Management forecasted that for second-quarter 2011
Radio revenue is trending to be up in mid single digits and
Televisions Stations advertising revenue is pacing up in low single
digits compared with the prior-year quarter.
Outdoor sales also
increased 5.4% to $413 million and reflected an improvement in the
outdoor advertising sector. Outdoor OIBDA jumped 53.1% to $49
million. For the second-quarter of 2011, Outdoor Group revenue is
pacing up mid to high single digits.
Other Financial
Details
CBS Corporation ended the quarter
with cash and cash equivalents of $972 million, long-term debt of
$5,968 million, and shareholders’ equity of $9,780 million. The
company generated free cash flow of $853 million during the
quarter. The company also repurchased 11.8 million shares for $250
million under its $1.5 billion share repurchase program.
Currently, we have a long-term
‘Neutral’ rating on the stock. Moreover, CBS holds a Zacks #3 Rank,
which translates into a short-term ‘Hold’ rating.
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