Key Takeaways From CBS’ Q4 Earnings

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]

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.

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