CBS Beats Zacks Consensus - Analyst Blog

CBS Corp. (CBS), a diversified media conglomerate, recently posted second-quarter 2010 results that topped the Zacks’ expectation and portrayed a substantial improvement from the year-ago quarter on the heels of a better operating environment and cost-containment efforts, thereby joining other media companies, which are gradually emerging from the downturn.

The company’s quarterly earnings of 25 cents a share beat the Zacks Consensus Estimate of 21 cents and witnessed a significant improvement from 9 cents posted in the prior-year quarter. However, on a reported basis, including one-time items, the company delivered quarterly earnings of 22 cents reflecting a sharp rise from 2 cents delivered in the same-quarter year earlier.

The quarter highlights improving trends in the advertising marketplace due to renewed strength in the auto and financial services categories, rise in traffic at CBS websites, and subscriber growth across Cable Networks. Management remains confident about the growth momentum continuing in the coming years. The company hinted that CBS stations could witness a substantial improvement in political advertising due to the November elections.

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.

The retransmission and affiliate fees from CBS’s cable and satellite partners for the right to retransmit broadcast programming have been another source of revenue. This is evident from the company’s recent 10-year programming deal with Comcast Corp. (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. CBS is eyeing more than $250 million in retransmission fees in fiscal 2012.

Quarterly Performance

CBS said that revenue for the quarter under review came in at $3,331 million, up 11% from the prior-year quarter. Total revenue comfortably surpassed the Zacks Consensus Revenue Estimate of $3,234 million.

New York-based CBS, indicated that total advertising revenue soared 9% to $2,157 million from the prior-year quarter.

Adjusted operating income before depreciation and amortization (OIBDA) surged 46% to $580.2 million, whereas OIBDA margin expanded 400 basis points to 17%.

Segment Performance

Content Group revenue, which comprises Entertainment, Cable Networks, and Publishing, grew 10% to $2,230.2 million.

Entertainment revenue jumped 10% to $1,671.7 million driven by a 5% increase in Network advertising revenue, a 22% growth witnessed in CBS Interactive display advertising revenue, and a 12% jump in revenue from the licensing and distribution of television programming. Entertainment OIBDA rose 7% to $222.6 million.

Cable Networks revenue climbed 12% to $368.8 million reflecting an increase in rate and subscriber growth across Showtime Networks and CBS College Sports Network, and rise in home entertainment revenue. Cable Networks OIBDA soared 33% to $129.3 million.

Publishing revenue advanced 5% to $189.7 million on the heels of a rise in digital content sales. Publishing OIBDA surged 64% to $16.9 million.

Local Group revenue, which comprises Local Broadcasting and Outdoor, rose 12% to $1,134.5 million.

Local Broadcasting revenue jumped 17% to $678.2 million due to an improved advertising environment and higher political advertising. CBS Television Stations revenue surged 31% to $337.9 million, whereas CBS Radio revenue grew 6% to $340.9 million. Local Broadcasting OIBDA rose more than twofold to $214 million.

Outdoor revenue climbed 5% to $456.3 million due to improvement in advertising demand, whereas OIBDA soared 76% to $78.7 million.

Financial Aspects

CBS ended the quarter with cash and cash equivalents of $838.1 million, total long-term debt of $6,542 million, reflecting debt-to-capitalization ratio of 42% and shareholders’ equity of $9,183 million. The company generated free cash flow of $491.5 million during the quarter. Cash flow from operating activities was $550.3 million during the quarter. Capital expenditures for the quarter were $58.8 million. For 2010, capital expenditures are anticipated between $250 million and $300 million.

We believe CBS Corporation’s strong brand and highly complementary mix of assets augur well for its long-term growth prospects.
 
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