CBS Corp. Surpasses Estimates - Analyst Blog

CBS Corporation (CBS) continued positive operating and cost-containment efforts to report a strong third quarter 2010 results, beating expectations and surpassing the previous financial reports significantly. Management also reported that the margin is approaching the pre-recession levels.

CBS Corp. reported third quarter adjusted earnings per share at 35 cents which surpassed the Zacks Consensus Estimate of 31 cents and also increased 40% both sequentially and year-over-year.

Quarter Highlights

Amidst the economic downturn where the media was badly hit, CBS has shown positive comeback with each quarter in 2010 delivering higher profits than the previous quarters.

CBS Corp. managed to report that the advertising marketplace has remained strong nationally and locally, “with robust pacing across the board.”

Management also noted that all the freshman shows showed strong start leading to the possible growth through retransmission consent fees, domestic and international syndication and other opportunities that the company would reap monetary benefits from.

In recent months the company has been striving to add diverse revenue streams to make it less susceptible to the economic cycles. The retransmission and affiliate fees have been non-advertising-driven revenue. CBS is eyeing more than $250 million in retransmission fees in fiscal 2012.

Adjusted operating income before depreciation and amortization (OIBDA) increased 17.2% to

$667.4 million, and the OIBDA margin increased 3 percentage points to 20% both sequentially and year-over-year.

Revenue

Revenue declined marginally by 1.6% to $3,297.5 million compared to same quarter previous year. The revenue was also short of the Zacks Consensus Estimate of $3,357 million. The decline in the revenue this quarter was mainly attributable to the absence of the benefit of first-cycle domestic syndication sales of five major titles, in the year-ago quarter. 

Revenue for the quarter was primarily helped by 10% growth in advertising to $1991.3 million and 15% growth in affiliate and subscription fees to $408.2 million.

Revenue by Segment

Content Group revenue, which comprises Entertainment, Cable Networks, and Publishing, declined 7.7% to $2,204.6 million from year-ago quarter due to the decline of revenue in the Entertainment revenue.

Entertainment revenue declined 11.6% to $1616.9 million from year-ago quarter. Network advertising revenue however increased 7% and CBS Interactive display advertising revenue increased 17%.

Increase of rates and growth in subscriptions at Showtime Networks and CBS College Sports Network helped Cable Networks revenue increase 11.7% to $370.0 million.

Publishing revenue decreased 5.5% to $217.7 million compared to same quarter last year.

Local Group revenue, which comprises Local Broadcasting and Outdoor, increased 12.1% year-over-year to $1,137.0 million.

Local Broadasting revenue increased 15% to $677.3 million from year ago quarter and was driven primarily by increase in advertising sales.

Outdoor sales also increased 8% to $459.7 million and reflected an improvement in the Outdoor advertising sector though partially offset by adverse effect of the foreign exchange rate changes.

Finances

CBS Corporation ended the quarter with cash and cash equivalents of $1072.0 million, total long-term debt of $5,966.7 million, and shareholders' equity of $9,527 million. The company generated free cash flow of $259.6 million during the quarter. Cash flow from operating activities was $323.0 million during the quarter. Capital expenditures for the quarter were $63.4 million.

Conclusion

Management expects to continue the trend of growth into the next quarter. Management also plans to continue investing in business from the substantial free cash flow.

Estimates for the quarter had been rising in the run-up to the earnings release, with 3 analysts raising estimates in the last 30 days and one declining estimates. The full-year estimate for next year has increased by 2 cents to $1.25 in last 30 days, with 7 analysts giving positive revisions in the last thirty days. The full-year Zacks Consensus Estimate for 2010 increased to $1.04 from $1.03 thirty days ago.

We currently have a Zacks #2 Rank for CBS Corp. which translates into a Buy rating on short-term basis.

 
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