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CBS Q2 Earnings and Revenues Beat Estimates, Increase Y/Y

CBS Corporation CBS delivered second-quarter 2018 adjusted earnings of $1.12 per share that beat the Zacks Consensus Estimate of $1.11 and increased 8% from the year-ago quarter.

Revenues increased 6.4% from the year-ago quarter to $3.466 billion and surpassed the consensus mark of $3.459 billion.

Revenues by Type

Advertising revenues increased 2.2% from the year-ago quarter to $1.327 billion. Growth was driven by Network Ten, which the company acquired in fourth-quarter of 2017.

Content licensing & distribution revenues were up 3.8% to $1.096 billion. Higher contribution from “additional series produced for third-party services” boosted year-over-year growth.

Further, affiliate and subscription fee revenues of $989 million grew 16.6% year over year, driven by growth in traditional distribution as well as new digital platforms. A surge in retransmission revenues and fees from CBS Television Network affiliated stations by 25% and the digital initiatives experiencing a 70% growth led to the overall growth of affiliate and subscription fee revenues.

Segment Details

Entertainment revenues increased 8.3% to $2.365 billion, driven by higher affiliate and subscription fee revenues (up 38%), content licensing and distribution revenues (up 4%) and advertising revenues (up 3%).

CBS Network advertising revenues inched up 1% from the year-ago quarter. The company is gaining from the newly launched Sports HQ. Its digital distribution services, CBS All Access and Showtime OTT, are expected to have a combined 8 million subscribers by the end of 2019, a year before the initial target of 2020. Currently, the company is aiming to hit a subscriber base of 16 million by 2022.

Notably, the company’s ad-based OTT services led by CBSN, its digital news network, has been attracting younger viewers and adding to the company’s top line.

Cable Networks’ revenues were up 4% to $591 million primarily due to growth of Showtime subscription streaming service and start of the renewal period for licensing of Showtime original series.

Publishing revenues of $207 million grew 0.5% on the back of 27% increase in digital audio. Bestselling titles were Stephen King book, Restless Wave by Senator John McCain and Spymaster by Brad Thor.

Local Media revenues climbed 2% to $420 million primarily due to higher retransmission revenues.

Operating Details

In the second quarter, adjusted operating income increased 1% from the year-ago quarter to $694 million. Operating margin contracted 100 basis points (bps) to 20.8%, reflecting higher investment in programming and digital initiatives.

Segment wise, Entertainment operating income increased 1% year over year to $356 million, primarily driven by higher revenues. Publishing increased 7% to $31 million due to favorable revenue mix that reduced operating expenses. Cable Networks operating income increased to $256 million from $255 million in the year-ago period which reflected higher revenues offset by increased investment in programming.

However, Local Media operating income was flat with the year-ago figure of $128 million.

Balance Sheet & Cash Flow Details

As of Jun 30, 2018, cash and cash equivalents were $252 million compared with $147 million as of Mar 31, 2018. Long-term debt was $9.46 billion, down from $9.47 billion at the end of previous quarter.

Cash flow from operating activities was $1.045 billion, while free cash flow was $296 million.

In the quarter under review, CBS bought back 3.8 million shares for $200 million.

CBS Corporation Price, Consensus and EPS Surprise

CBS Corporation Price, Consensus and EPS Surprise | CBS Corporation Quote

Guidance

For the third quarter, CBS expects Local Media revenues to increase at a double-digit rate as mid-term elections are coming closer.

Zacks Rank and Stocks to Consider

CBS currently carries a Zacks Rank #3 (Hold).

Some other top-ranked stocks in the broader technology sector include Micron Technology MU, Amazon.com, Inc. AMZN and Apple Inc. AAPL. While Micron and Amazon sport a Zacks Rank #1 (Strong Buy), Apple carries a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks Rank #1 stocks here.

Long-term earnings growth rate for Micron, Amazon and Apple is projected to be 8.2%, 26.5% and 10.9%, respectively.

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