Viacom Beats Q1 Estimates On Higher Affiliate Revenues, Strong Film Slate

Viacom‘s (NYSE:VIA) stock climbed up slightly after the company announced better-than-expected Q1 results, as both its earnings per share and revenue came in ahead of expectations. The company’s total revenue increased 5% year-over-year (y-o-y) to $3.3 billion, due to growth in both the Media Networks and Filmed Entertainment segments. The company’s top line growth was driven by an increase in affiliate revenue and strength in the company’s international operations in Media Networks, along with a stronger film slate at Paramount studio. However, the company’s operating income declined 16% y-o-y to $706 million due to increased programming expenses at the networks and marketing costs at Paramount. Viacom also posted adjusted earnings of $1.04 per share, which decreased 12% y-o-y.

In Q1, Viacom also generated $113 million of operating free cash flow, a $265 million improvement versus the prior year. This improvement in free cash flow was principally due to lower working capital utilization, reflecting the timing of film and programming spend. The company also announced a plan to turn around its business, and focus on its six flagship networks – Nickelodeon, Nick Jr., MTV, BET, Comedy Central and Paramount. The media company further announced that it will integrate the Paramount brand deeper into its operations, as against the ideal of selling it off earlier. To add to that, Paramount’s film slate will also include co-branded releases from each of those flagships; for example, the film Amusement Park will premiere in theaters as a Paramount co-brand with Nickelodeon in summer 2018 and then become a TV series the next year.

Media Networks Grows On Higher Affiliate Revenues

In the first quarter, Viacom’s media networks saw 1% y-o-y revenue growth to $2.6 billion, due to a 2% y-o-y increase in affiliate revenues and 20% y-o-y growth in its ancillary revenues, partially offset by a 2% y-o-y decline in the segment’s advertising revenues. However, Media Networks adjusted operating income declined 7% y-o-y due to investment in programming and employee costs. The Media Networks performance in the December quarter benefited from the growth in revenues as well as the timing of expenses as certain show launches moved out of the quarter.

At the domestic front, Media Networks witnessed 2% y-o-y growth in affiliate revenues, driven by rate increases and the impact of SVOD and OTT agreements, partially offset by decline in pay TV subscribers. While at the international front, the segment’s international affiliate revenues increased 3% y-o-y on the back of impact of rate increases, subscriber growth, new channel launches as well as higher revenues from SVOD and OTT arrangements.

Solid Studio Performance in Q1

Viacom’s Filmed Entertainment revenues in the fourth quarter were down 24% y-o-y, principally due to a strong 104% y-o-y increase in its theatrical revenues. The company’s theatrical revenues grew to $192 million due to the first quarter box-office releases, including Jack Reacher: Never Go Back, Arrival, Office Christmas Party and Fences. In fact, Paramount Pictures collected $267 million at the U.S. box office during the December quarter. However, the segment also generated an adjusted operating loss of $180 million in the quarter, due to higher print and advertising costs related to the theatrical releases.

Guidance

In Q2 fiscal 2017, Viacom expects low single-digit revenue growth in its domestic affiliate revenues. For the full year 2017, the company expects Media Networks SG&A expense to grow in mid single digits. The company is estimating a book tax rate of approximately 31% for the year.

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