CBS Beats Q2 Estimates On Growth in Licensing And Affiliate Revenues

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CBS Corporation (NYSE:CBS) reported better-than-expected fiscal second quarter results on August 7, as its earnings and revenue came in ahead of analysts’ expectations. The company’s revenue increased 9% year-over-year (y-o-y) to $3.3 billion, primarily due to growth across segments. In Q2, CBS’ total advertising revenue grew 4% y-o-y to $1.3 billion, led by the broadcast of the NCAA Final Four. The company’s content licensing and distribution revenue for the second quarter grew 12% 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, including Twin Peaks. In terms of affiliate and subscription fees, the 16% y-o-y increase was due to 25% growth in retransmission fees, and higher revenue from company’s over-the-top (OTT) subscription services, including CBS All Access and Showtime’s streaming service. In addition, CBS reported operating income of $669 million, up 3% y-o-y, driven by the growth in affiliate and subscription fee revenues. The company also posted adjusted earnings of $1.04, up 12% y-o-y.

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In the first half of 2017, the company’s free cash flow decreased 21% y-o-y to $841 million, driven by a tough comparison from the broadcast of Super Bowl 50 in 2016, and discretionary pension contributions of $100 million in Q1 2017.

Cable Networks Growth Continues In Q2

At the Cable Networks segment, the company’s revenue in the second quarter grew 7% y-o-y to $571 million, driven by higher affiliate and subscription fees. Much of the increase was driven by subscription growth for the Showtime digital streaming subscription offering, and by the timing of international television licensing sales of Showtime’s original series. In addition, the segment’s operating income increased 11% y-o-y to $253 million, primarily due to the profitable Showtime OTT service.

Q2 Earnings Call Updates

On the CBS Radio and Entercom merger, the deal is expected to close later this year. The company is in the process of obtaining the necessary regulatory approvals. The company’s management also announced that CBS networks, including CBS Broadcast, Showtime, CW and CBS Sports Network, would be available on DirecTV Now, AT&T ‘s (NYSE:T) OTT service. Further, the company also stated that CBS All Access and Showtime OTT are expected to exceed 4 million subscribers combined by the end of 2017, against a goal of 8 million subscribers by 2020. CBS also plans to expand CBS All Access into the international marketplace in the first half of 2018, beginning with Canada.

Future Outlook

In Q3 2017, Reuters’ compiled analyst estimates forecast revenues of $3.3 billion and earnings of $1.16 per share. At Local Media, the company expects the segment revenue to pace up to low-single digits for the third quarter. At Cable Networks, the company’s revenues are expected to benefit from the Floyd Mayweather – Conor McGregor pay-per-view boxing event in Q3.

Going forward, CBS also expects to retire more than $1 billion worth of stock during the second half of 2017, including additional share repurchases in Q3 and the Radio exchange offer in Q4.

See our complete analysis for CBS Corporation 

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