Key Takeaways From CBS’ Q4 Earnings

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CBS Corporation (NYSE:CBS) reported mixed fourth quarter results, as its earnings came ahead of analysts’ expectations but revenue missed. The company’s revenue declined 2% year-over-year (y-o-y) to $3.5 billion, primarily due to a decline in content licensing and advertising, which more than offset the gains in affiliate fees. In Q4, CBS’ total advertising revenue slid 3% y-o-y to $1.8 billion, owing to three fewer Thursday Night Football games from last year as well as nine fewer hours of prime-time programming due to U.S. Presidential election coverage. Moreover, the company’s content licensing and distribution for the fourth quarter decreased 12% y-o-y, due to a significant international licensing sale of the entire Showtime portfolio. In affiliate and subscription fees, CBS surpassed $1 billion in re-transmission and reverse compensation for the first time in 2016. In fact, the company plans to achieve $2.5 billion from these sources by 2020. [1]

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CBS also reported operating income of $733 million, up 10% y-o-y, along with adjusted earnings of $1.11 per share (all-time high), which increased 21% y-o-y. The healthy growth in operating income was driven by growth in high-margin revenue sources as well as record political advertising. 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 fourth quarter results.

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Cable Networks Declines In Q4 Results

At the Cable Networks segment, the company’s revenue in fourth quarter declined 11% y-o-y to $501 million due to fewer programming deals compared to last year. However, for the full year 2016, Showtime’s subscriptions grew 3% y-o-y and its affiliate revenue grew by 5% y-o-y. This growth was driven by the company’s profitable OTT business model. In addition, the segment’s operating income declined 4% y-o-y to $219 million.

Drop In Publishing Revenues

In the Publishing segment, the company’s revenue for the fourth quarter came in at $209 million, down 10% y-o-y, due to a difficult comparison from the same period last year. However, audio books continued to see solid growth and were up 20% y-o-y in the fourth quarter. The segment’s operating income grew 6% y-o-y to $36 million in Q4, driven by lower production costs.

Local Media Saw Strong Growth

Local Media segment consists of the CBS TV stations, which reported 16% y-o-y growth in revenue to $526 million. This was primarily driven by record political advertising sales from federal and state elections and 9% growth in re-transmission and subscription revenues. This segment’s operating income for the fourth quarter was $216 million, up 45% y-o-y.

Future Outlook

In 2017, CBS continues to expect robust network scatter pricing in the first quarter. In content licensing and distribution, the company expects to launch – NCIS: New Orleans, Scorpion, Madam Secretary – into domestic syndication this year. In affiliate and subscription fees, CBS expects re-transmission and reverse compensation to be up about 25% from last year, as some contracts could be reset in 2017. In addition, the media company expects its over-the-top services, which already surpassed 2 million subscribers in 2016, to continue to be a bigger contributor to the company’s results going forward.

In Q1 2017, Reuters’ compiled analyst estimates forecast revenues of $4 billion and earnings of 98 cents per share.

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Notes:
  1. CBS (CBS) Q4 2016 Results – Earnings Call Transcript, Seeking Alpha, Feb 16 2016 []