CBS’ 2017 In Review

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CBS Corporation (NYSE:CBS) announced mixed 2017 results so far, as both its revenue and earnings per share came in ahead of market expectations in the first two quarters, while revenue missed consensus estimates and its earnings per share came in ahead of analysts’ expectations in the third quarter. The company’s stock has slid nearly 10% since the beginning of the year, largely due to declines in advertising sales, offset by growth in affiliate and subscription fees.

In the first nine months of 2017, CBS’ total advertising revenue fell 11% y-o-y to $4 billion, primarily due to a difficult comparison to last year’s political spending and Super Bowl 50. The company’s content licensing and distribution revenue for the first three quarters declined marginally, due to growth in domestic and international television licensing sales, partially offset by the timing of content availabilities. In terms of affiliate and subscription fees, the robust 28% y-o-y increase was led by growth in affiliation fees and re-transmission fees, and higher revenue from the company’s over-the-top (OTT) subscription services, including CBS All Access and Showtime OTT. This was also aided by the Mayweather-McGregor pay-per-view event.

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In the first nine months of 2017, CBS’ overall revenue increased 1% year-over-year (y-o-y) to $9.8 billion, primarily due to growth in Cable Networks and Publishing, partially offset by declines in Entertainment and Local Media segments. In addition, CBS reported operating income of $2 billion in this period, down 2% y-o-y. The company also posted adjusted earnings of $3.21, up 7% y-o-y. In addition, the company’s free cash flow in this period decreased 18% y-o-y to $823 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.

Updates On Radio Transaction

CBS launched an exchange offer to split up its Radio business as part of its agreement to merge with Entercom in Q1 2017.  The transaction closed on November 17, making Entercom the second largest radio station owner with 244 stations in 47 markets. Entercom divested 13 radio stations in order to get the acquisition to go through. As a result of this exchange offer, CBS plans to retire about another $1 billion of its stock, which is in addition to the more than $1 billion already purchased (year to date), including $250 million used to buy back 3.9 million shares during the third quarter.

CBS incurred a net loss of $252 million in the first quarter, as special items related to the sale of CBS Radio weighed on the company’s results, which included a non-cash charge of $715 million to account for the drop in the share price of Entercom. As a result, the company reported a consolidated net income of $398 million, which declined 71% y-0-y, in the first nine months of 2017.

Future Outlook

In Q4 2017, Reuters’ compiled analyst estimates forecast revenues of $3.8 billion and earnings of $1.25 per share. At Local Media, the company expects the segment revenue to pace up to mid-single digits for the fourth quarter. At Cable Networks, scatter pricing is expected to grow in double digits against upfront pricing.

Our $67 price estimate for CBS’ stock is around 10% ahead of the current market price.

See our complete analysis for CBS Corporation 

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