CBS Earnings Grow 7% Due To Higher Non-Advertising Income

CBS Corporation (NYSE:CBS) recently reported its Q1 2014 results, which came largely on expected lines. The overall revenues declined by 5% to $3.86 billion while the earnings grew 7% to $0.78 a share. It must be noted that the first quarter revenue comparison was difficult as prior year quarter benefited from the Super Bowl and NCAA games. Absence of the Super Bowl led to a 12% decline in the advertising revenues. The growth was stable from the other revenue sources. Content licensing and distribution revenues increased 6% to $1.07 billion as compared to the prior year period, reflecting growth from international licensing of television programming. International content licensing grew by 22% in the first quarter. ^[1] Similarly, affiliate and subscription fees increased by 9% to $567 million as compared to the prior year period, primarily due to 19% growth in retransmission revenues and network affiliation fees. ^[2] Going forward, we believe CBS will see solid growth especially in the second half of 2014 driven by Thursday Night Football, and higher advertising revenues due to the U.S. midterm elections. We also believe that Cable Networks will continue to grow, strongly driven by the company’s focus on original programming.

We currently have $65 price estimate for CBS Corporation, which we will soon update based on the recent earnings announcement.

See our complete analysis for CBS

Entertainment And Cable Networks See Continued Growth

Revenues at the Entertainment division were down 9% to $2.30 billion while operating income (before depreciation and amortization) was down 5% to $457 million. However, if we take out the Super Bowl and NCAA games of last year, the revenues were up in low single digits. ^[1] If we look at the CBS television network, it did well in the first quarter. It continued to be the most watched network in the U.S., benefiting from its original programming including The Big Bang Theory, NCIS and The Millers. CBS will do even better in the coming quarters with its solid summer primetime slate that includes another season of Under The Dome, Steven Spielberg’s Extant starring Halle Berry and NFL Thursday Night. It must be noted that the comparability will be negatively impacted from the third quarter due to cost increases over the company’s agreement with the NFL.

Cable Networks contribute close to 25% to CBS’ value, according to our estimates. The Cable Networks division includes Showtime Networks, CBS Sports and Smithsonian Networks. Revenues and operating income at this segment were up 12% driven by the licensing of Showtime original series as well as higher affiliate revenues. ^[2] We believe Showtime will do better in the later half of 2014 driven by the return of Ray Donovan and Masters of Sex, both of which were very popular last year. Also, the most popular show of the network, Homeland, will return for season 4 this fall. Cable Networks have seen solid growth in the past few years, from $1.62 billion in 2011 to $2.07 billion in 2013, reflecting average annual growth rate of 12%. We believe CBS will continue to see strong growth in this segment driven by the company’s focus on original programming. We estimate the segment revenues to be northward of $3.5 billion by the end of our forecast period, reflecting average annual growth rate of 8% in the coming years. It must be noted that CBS will soon split-off its Outdoor division, which would then split the company’s advertising and non-advertising income in the ratio of 50:50. This is significant for the content companies such as CBS, as less reliance on advertising income and accelerating growth from non-advertising sources can ensure stable growth outlook in the long run.

See More at Trefis | View Interactive Institutional Research (Powered by Trefis)
Get Trefis Technology

1. CBS’s (CBS) CEO Leslie Moonves on Q1 2014 Results – Earnings Call Transcript, Seeking Alpha, May 8, 2014 [↩] [↩]
2. CBS Corporation’s SEC Filings [↩] [↩]