What To Expect From Viacom’s Q1 And Fiscal 2019

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Viacom (NYSE:VIA) is scheduled to announce its fiscal first quarter results on Tuesday, February 5. In fiscal 2018, the company’s total revenue declined 2% year-over-year (y-o-y) to $12.9 billion, due to weakness in the Filmed Entertainment segment. At Paramount, an overall 8% y-o-y loss in revenues reflected the number and mix of released theatrical and home entertainment titles, partially offset by increased revenues from Paramount Television product. At Media Networks, revenues declined slightly, driven by lower advertising and affiliate revenues, partially offset by an increase in ancillary revenues. In addition, Viacom’s adjusted operating income grew 2% y-o-y and its adjusted earnings per share grew 9% y-o-y in fiscal 2018.

Our $35 price estimate for Viacom’s stock is almost 10% ahead of the current market price. We have created an interactive dashboard – Can Viacom Turnaround Its Core Business In Fiscal 2019? – which outlines our forecasts for the company’s full-year fiscal 2019 results. You can modify our forecasts to see the impact any changes would have on the company’s earnings and valuation. Going forward, we expect Viacom to post an increase in earnings and revenue growth rate in Q1, driven by growth in affiliate revenues, strength at Paramount, and savings from its cost transformation.

Future Outlook

For fiscal 2019, Viacom expects its adjusted operating income to return to full-year profitability at Filmed Entertainment and expects a low single-digit decline at Media Networks. In the same period, the company also expects to benefit from lower interest expense. Viacom’s top line growth in fiscal 2019 is expected to be accompanied by investments in AMS, digital, next-generation products and its studio initiative, which may pressure margins. These investments could be partially offset, however, by the benefits of its cost transformation initiatives, which remain on track to deliver over $300 million in run rate annual savings in fiscal 2019 and beyond. In fact, these savings are expected to largely drop to the bottom line as well.

Media Networks Outlook

In terms of domestic affiliate revenues, Viacom expects to see low single-digit growth in fiscal 2019, helped by rate escalators, the multi-platform expansion of products based on its IP, and continued virtual MVPD growth. For domestic advertising sales, the company anticipates sequential quarterly performance improvement over the course of the fiscal year with a return to growth in the back half, leading to growth on a full-year basis. Advertising sales will benefit from strong upfront pricing and significant growth in revenues from Advanced Marketing Solutions (AMS). On a constant currency basis, the segment’s total expenses are expected to grow in the low to mid-single-digit range.

AMS is designed to help Viacom earn more revenue from emerging advertising platforms. The company has seen its advertising revenue decline year-over-year as ratings across its linear cable TV channels have suffered. In order to address this problem, the company is offering brand solutions ranging from consulting, creative and social campaign services, alongside its video inventory. This platform continues to be an engine of growth, as it increased 32% in Q4 and reached its goal with revenues of over $300 to $340 million for fiscal 2018. The company expects this business to accelerate into 2019 as well.

Filmed Entertainment Outlook

In fiscal 2019, Viacom expects to see strong top-line growth driven by the new slate strategy, continued momentum in TV production, as well as continued improvements in the monetization of Paramount’s film library. Paramount’s 2019 slate includes the latest installment of the Transformers franchise, Bumblebee, What Men Want, animated feature Wonder Park, horror classic Pet Sematary, and the Elton John biopic Rocketman. Putting this all together, the company expects low single-digit growth in fiscal 2019.

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