Key Takeaways From CBS’ Q1 Earnings

CBS Corporation (NYSE:CBS) reported better-than-expected fiscal first quarter results, as its earnings and revenue came in ahead of analysts’ expectations. However, the company’s revenue declined 7% year-over-year (y-o-y) to $3.3 billion, primarily due to a decline in advertising, which more than offset the gains in content licensing and affiliate fees. In Q1, CBS’ total advertising revenue slid 23% y-o-y to $1.6 billion, owing to a difficult comparison from last year’s Super Bowl 50 and an extra NFL playoff game. The company’s content licensing and distribution for the first quarter grew 16% y-o-y, due to growth in domestic and international television licensing sales as a result of the company’s recent increased investment in internally-produced series. In affiliate and subscription fees, the 17% y-o-y increase was due to a 28% growth in affiliation fees and re-transmission fees, and higher revenue from company’s over-the-top (OTT) subscription services, including CBS All Access and Showtime OTT.

On the CBS Radio and Entercom merger, the deal is expected to close in the second half of 2017. The company is in the process of obtaining the necessary approvals from various regulatory agencies. However, special items related to the sale of CBS Radio weighed on the first quarter results, which includes a non-cash charge of $715 million to account for the drop in the share price of Entercom. As a result, the company incurred a net loss of $252 million in the first quarter. In addition, CBS reported operating income of $704 million, down 7% y-o-y, driven by lower advertising revenue. The company also posted adjusted earnings of $1.04, up 9% y-o-y.

Cable Networks Grows In Q1

At the Cable Networks segment, the company’s revenue in the first quarter grew 3% y-o-y to $543 million, driven by higher affiliate (+6%) and subscription fees. Much of the increase was driven by subscription growth for the Showtime digital streaming subscription offering, partially offset by the timing of international television licensing sales of Showtime original series. In addition, the segment’s operating income increased 9% y-o-y to $248 million, primarily due to the profitable Showtime OTT service. According to MediaPost, overall Nielsen C3 ratings for broadcast TV declined 13% in the first quarter. However, CBS grew 18% in the C3 prime time ratings within the 18-49 age group. ((Television, Cable Viewing Down In Q1, InsideRadio, Apr 22 2017))

Rise In Publishing Revenues

In the Publishing segment, the company’s revenue for the first quarter came in at $161 million, up 11% y-o-y, due to strong print sales. Moreover, audio books continued to see solid growth and were up 35% y-o-y in the first quarter. The segment’s operating income grew 8% y-o-y to $14 million in Q1. The best-selling titles during the first quarter included Unshakeable by Tony Robbins.

Local Media Witnessed Weak Growth

CBS’ Local Media segment consists of the CBS TV stations, which reported 9% y-o-y declines in revenue to $409 million. This was primarily because of the same two non-comparable NFL games. However, Local Media benefited from growth in re-transmission at TV stations, and underlying revenue was up low single digits. The segment’s operating income for the first quarter was $123 million, down 18% y-o-y.

Future Outlook

In Q2 2017, Reuters’ compiled analyst estimates forecast revenues of $3 billion and earnings of $1.01 per share. At Local Media, the company expects the segment revenue to pace up to mid-single digits for the second quarter.

CBS expects to grow its re-transmission and reverse compensation revenue by approximately 25% in 2017.  The company also expects healthy growth in OTT subscribers on the basis of soon-to-be-launched franchises, Twin Peaks on Showtime, Star Trek: Discovery and the first full season of the NFL on CBS All Access. However, in the second half of 2017, the advertising revenue comparison with the prior year is expected to be negatively affected by the benefit in 2016 from strong political advertising.

See our complete analysis for CBS Corporation 

View Interactive Institutional Research (Powered by Trefis):

Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research