Higher Advertising Income Boosts CBS’ Q4 Earnings

CBS Corporation (NYSE:CBS) in the fourth quarter posted 3% revenue growth while the adjusted earnings were up 8% to $0.77 per share. The company continues to see significant growth in retransmission fees, which led to an 11% growth in affiliate and subscription fees for the quarter. ^[1] CBS benefited from Thursday Night Football and higher political spending, which boosted the advertising revenues during the December quarter. However, CBS has one less Playoff game in Q1 of 2015 and this will surely impact its advertising income in the current quarter. The company has inked a long-term deal with Bell Media in Canada to offer Showtime as a standalone service. This deal opens up the gates for Showtime to expand in different geographies and will boost the international licensing revenues at CBS.

We estimate revenues of about $14 billion in 2015 and currently have a $52 price estimate for CBS Corporation, which we will soon update to incorporate the recent quarterly earnings.

See our complete analysis for CBS

Entertainment Division Continues To See Lower EBITDA Given Higher Programming Costs

The entertainment division, which includes the CBS Television Network, saw 2% growth in revenues while EBITDA declined 31% to $287 million, due to higher investment in NFL programming. We believe CBS will see solid growth in the near term as well as in the long run driven by its programming appeal. Looking at the 2014-15 television season, some of CBS’ shows such as Mom are seeing higher ratings. While Mom saw a rating uptick of 17% in 18-49 demographic, total viewership jumped 40% in the current television season. ^[2] CBS continues to be the most watched network averaging 11.7 million viewers nightly. Accordingly, the company is seeing a high single-digit growth in the scatter market ad pricing over the upfront ad sales in the current quarter. ^[3] We currently estimate $8.40 billion revenue for the entertainment division in 2015 and an estimated EBITDA margin of 23.50% will translate into EBITDA of close to $2 billion, representing around 50% of the company wide EBITDA.

Solid Growth At Cable Networks

We estimate that Cable Networks contribute more than 25% to CBS’ stock value. The Cable Networks division includes Showtime Networks, CBS Sports and Smithsonian Networks. The segment revenues increased 5% to $499 million and EBITDA grew 24% to $247 million due to lower programming costs. ^[1] Showtime networks have been adding more subscribers every year. Accordingly, cable networks revenues also grew from $1.16 billion in 2007 to $2.18 billion in 2014. The network’s compelling original programming including, Dexter and Homeland primarily drove this growth. Moreover, the contracts between media companies and pay-TV operators include pre-defined yearly subscription rate increases and boost the subscription revenue growth. We believe the above factors will continue to drive growth for CBS’ cable networks in the near term as well as in the long run (see – Showtime Will Continue To Drive Growth For CBS’ Cable Operations).We currently estimate $2.30 billion revenue for the cable networks division in 2015 and an estimated EBITDA margin of 46% will translate into EBITDA of $1.05 billion, representing around 25% of the company wide EBITDA.

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1. CBS Corporation’s SEC Filings [↩] [↩]
2. CBS 2014-15 Season Ratings, TVSeriesFinale, Feb 12, 2015 [↩]
3. CBS’ (CBS) CEO Les Moonves on Q4 2014 Results – Earnings Call Transcript, Seeking Alpha, Feb 12, 2015 [↩]