CBS’ Earnings Jump 22% Over NFL And Solid Primetime Shows

CBS Corporation (NYSE:CBS) recently reported its Q4 2013 results on expected lines. Overall revenues increased by 6% to $3.91 billion and earnings jumped 22% to $0.78 a share. ^[1] The growth was primarily led by gains in content licensing and distribution. Advertising revenues at CBS Television Network rose 4% as compared to the prior year period, which was a presidential election year. Non-political revenues in local broadcasting were up 4% helped by the NFL and CBS’ prime time slate. ^[2] Looking forward, the company is poised to benefit from its content and original programming. Last month, the company inked a deal with Amazon (NASDAQ:AMZN) over the distribution rights for Extant, which is a series produced by Steven Spielberg’s Amblin Entertainment and the star cast includes Halle Berry. The benefits of this deal will be visible in Q1 2014. CBS also secured rights to broadcast Thursday Night Football. The company already has a solid prime time and the new coverage will give it another 32 hours of NFL programming, thereby supporting its advertising growth. ^[3]

We currently have $60 price estimate for CBS Corporation, which we will soon update based on the fourth quarter earnings announcement.

See our complete analysis for CBS

CBS Sees Growth Across Its Segments

CBS’ notable business segments include Entertainment, Cable Networks and Publishing. Entertainment division includes CBS Television Network, CBS Television Studios, CBS Global Distribution Group, CBS Films and CBS Interactive. Revenues at this segment jumped 11% to $2.21 billion and operating income surged 27% to $328 million, driven by higher domestic and international licensing of television programming for digital streaming and syndication, higher advertising revenues, and growth in network affiliation fees. ^[1]

CBS’ Cable Network includes Showtime Networks, CBS Sports and Smithsonian Networks. Revenues at this segment were up 9% and operating income was up 8% driven by the licensing of Showtime original series as well as higher affiliate revenues. The company’s publishing division includes Simon & Schuster, which saw revenue growth of 5%, while the operating income grew by 19%, driven by the success of its titles such as Rush Revere and the Brave Pilgrims and The Bully Pulpit. Local broadcasting, which includes CBS television stations and CBS radio, saw a 9% decline in revenues and operating income plunged 19% due to lower political advertising revenues compared to 2012, which benefited from the U.S. presidential election. ^[1]

Content licensing and distribution revenues for CBS jumped 28% to $898 million for the quarter. ^[1] It is significant that  CBS has been able to increase its non-advertising revenues. For the full-year period, content licensing grew 15% close to $4 billion and affiliate and subscription fees grew 16% to $2.2 billion. ^[1] This collectively accounts for 40% of the company’s revenues. With non-advertising revenues growing at a higher pace than that of advertising revenues, the company can look forward to a more stable growth outlook. The company in its recent conference call stated that it will be close to achieving a 50:50 mix of advertising and non-advertising business after the separation of its outdoor business later this year. ^[3]

What Is Driving The Growth At CBS’ Cable Networks?

CBS operates premium cable networks such as Showtime, which are ad-free and thus rely on quality content that allow the company to charge a high fee per subscriber. The hit series Homeland remains the number one program for the Showtime network, with a 21% gain in ratings over the previous season. The network’s new series, Ray Donovan and Masters of Sex both finished with ratings better than Homeland’s freshman season, Ray Donovan by 31% and Masters of Sex by 10%. ^[2] Notably, CBS has recently begun licensing Showtime programs such as Dexter, which Netflix (NASDAQ:NFLX) has added to its collection. Going forward, as digital streaming continues to rise, such licensing deals will bring in more syndication value for the company. CBS’s cable networks business has been growing in the past few years fueled by growth in subscribers, rising subscription fees and growth in licensing revenues. We expect these trends to continue as the demand for content continues to grow.

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1. CBS Corporation’s SEC Filings [↩] [↩] [↩] [↩] [↩]
2. CBS Management Discusses Q4 2013 Results – Earnings Call Transcript, Seeking Alpha, Feb 12, 2014 [↩] [↩]
3. CBS Management Discusses Q4 2013 Results – Earnings Call Transcript, Seeking Alpha, Feb 12, 2014 [↩] [↩]