Key Takeaways From CBS’ Q3 2016 Earnings

CBS Corporation (NYSE:CBS) third quarter results were above consensus estimates, led primarily by domestic cable licensing. CBS showed growth in profits and revenues across all segments, as overall revenue increased 4% year-over-year (y-0-y) to $3.4 billion, as re-transmission fees from affiliates grew 32% y-o-y and content licensing and distribution revenues were up 6% y-o-y to $1.1 billion. Also during the quarter, CBS separated out its radio business from its local broadcasting, since for several years radio had been a drag on CBS’s results due to growing competition from satellite radio and streaming services.

CBS also reported operating income of $798 million, up 6% y-o-y, along with adjusted earnings of $1.05 per share (all-time high), which increased 19% y-o-y. Moreover, CBS’ affiliate and subscription-fee revenue in the quarter grew 13% y-o-y to $753 million. Going forward, the company expects its affiliate and subscription fees to surpass $1 billion in re-transmission and reverse compensation revenue for 2016, with 21% of its re-transmission and 14% of its reverse compensation footprint coming up for renewal in 2017 ^[1]. In addition, CBS’ over-the-top (OTT) subscription services, CBS All Access and Showtime OTT, continued to be the key contributors to the company’s third quarter results.

Cable Networks Boosted Q3 Results

CBS’ cable networks (Showtime Networks, CBS Sports Network and Smithsonian Networks) continue to post steady subscription growth. It should be noted that CBS’ Showtime is one of the popular cable networks that has been able to post subscriber growth even in the recent years with increased cord-cutting amid growth of alternative video platforms. Showtime has over 23 million pay-TV subscribers.

The company expects its Showtime subscribers to grow further with the launch of its new seasons of The Affair, Homeland and Billions. CBS owns more than 80% of its Showtime and CBS lineups. In addition, CBS continues to license its entire Showtime brand internationally, following deals in Canada, Australia, and several key European markets. Cable network’s revenue grew by 14% y-o-y to $598 million in the third quarter. This increase was driven by domestic licensing of original Showtime series and growth in Showtime OTT subscriptions.

Publishing Revenues Driven By Best-Selling Titles

CBS’ publishing revenues increased 11% y-o-y to $226 million in the third quarter, driven by best-selling titles including The Girl with the Lower Back Tattoo by Amy Schumer and the recently released Born to Run by Bruce Springsteen. In addition, audio books continued to grow strongly and were up 41% y-o-y for the quarter, whereas overall digital sales grew 5% y-o-y.

Local Media To Outsine In Near Term

Local Media segment consists of the CBS TV stations, which reported 9% y-o-y growth in revenue to $409 million. This was primarily driven by strong political spending and higher re-transmission revenue. This segment’s operating income for the third quarter was $122 million, up 21% y-o-y. Going forward, the company expects strong fourth quarter for local media segment driven by political spending, upfront pricing as well as strong scatter pricing.

Q4 Guidance

Reuters’ compiled analyst estimates forecast revenues of $4.07 billion and earnings of $1.15 per share for Q4 2016, implying growth of about 4% and 25%, respectively. Historically, CBS’ fourth quarter has been its strongest quarter which includes the holiday season. Therefore, we expect the company to carry forward its growth momentum in the fourth quarter as well, driven by strong third quarter results and healthy gains in the upfront pricing markets.

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1. CBS (CBS) Q3 2016 Results – Earnings Call Transcript, Seeking Alpha, Nov 3 2016 [↩]