Key Takeaways From Viacom’s Q1

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Viacom (NYSE:VIA) announced mixed Q1 results on February 8, as its earnings per share came in ahead of market expectations but revenues missed. However, the company’s stock grew nearly 10% after the results announcement as the company raised its forecast for full-year revenue from U.S. cable and satellite companies. We have created an Interactive Dashboard which outlines our forecasts for the company and our expectations for its Q2 2018 results. You can modify our forecasts to see the impact any changes would have on the company’s earnings and valuation.

Decline In Media Networks, Filmed Entertainment 

Viacom’s total revenue decreased 8% year-over-year (y-o-y) to $3 billion, due to declines in both the Media Networks and Filmed Entertainment segments. The company’s top line fall was driven by a decline in affiliate revenues at the Media Networks business, along with poor results in theatrical business due to a weaker film sate at Paramount studio. Accordingly, the company’s operating expenses declined 10% y-o-y, due to lower segment expenses. Viacom also posted earnings of $1.33 per share, up 33% y-o-y, principally due to the tax reform.

Viacom’s Filmed Entertainment revenues in the quarter were down 28% y-o-y, primarily due to a decline in all its revenue streams, particularly, theatrical and home entertainment. While Viacom’s Media Networks saw a 1% y-o-y revenue decline, driven by a 1% y-o-y increase in advertising revenues, which were more than offset by a 4% y-o-y fall in the segment’s affiliate revenues. In addition, the segment’s domestic revenues fell 6% y-o-y and international revenues grew 18% y-o-y.

Future Outlook

Viacom expects sequential improvement in domestic advertising sales, with declines in the low to mid-single-digit in the second quarter, and subsequently growing positive by the fourth quarter. The company expects its ratings to improve on the back of new original programming coming on air, greater carriage benefits from improved distributor penetration and accelerating contributions from digital initiatives. Viacom also expects its full-year domestic affiliate revenue to decline on the low-end of mid-single-digits, a 200-basis point improvement versus the previous guidance.

Viacom is exploring the potential combination with CBS again. The two companies had explored a merger in 2016, but the talks failed at that time. Redstone-controlled National Amusements Inc (NAI), a holding company with an 80% stake in both Viacom and CBS, withdrew its support for the deal because it was not clear how to structure a deal that made sense for CBS shareholders.

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