CBS Reports In-Line, Advertising Picks Up

| About: CBS Corporation (CBS)

CBS Corporation (NYSE:CBS), a diversified media conglomerate, recently posted first-quarter 2010 results that were in line with the Zacks expectation and portrayed substantial improvement from the year-ago quarter on the heels of a better operating environment and cost-containment efforts, thereby joining the other media companies, which are gradually emerging from the downturn.

The quarter highlights improving trends in the advertising marketplace due to renewed strength in the auto, real estate and financial services categories, rise in traffic at CBS Interactive sites having registered subscriber growth across Cable Networks. Management remains confident about the growth momentum continuing in fiscal 2010.

The New York based company, CBS, indicated that total advertising revenue soared 17% to $2,381.4 million from the prior-year quarter.

Due to its exposure to publishing, radio and television broadcasting, and outdoor billboard businesses, CBS Corporation remains highly susceptible to the advertising market. The company hinted that CBS stations could witness a substantial improvement in political advertising due to the November elections.

Moreover, the retransmission and affiliate fees from CBS’s cable and satellite partners for the right to retransmit broadcast programming have been another source of revenue. CBS is eyeing at least $100 million in retransmission fees in fiscal 2010.

Quarterly Performance

The company’s quarterly earnings of 5 cents a share remain in line with the Zacks Consensus Estimate and showed a drastic improvement over a loss of 5 cents posted in the prior-year quarter. However, on a reported basis, including one-time items, the company delivered a quarterly loss of 4 cents a share, but still managed to be up from a loss of 8 cents posted in the year-ago quarter.

CBS Corporation said that it registered its first double-digit growth in revenue since its separation from Viacom Inc. (NYSE:VIA) at the end of 2005. Revenue for the quarter under review rose 12% year-over-year to $3,530.9 million.

Adjusted operating income before depreciation and amortization (OIBDA) surged 40% to $351.3 million, whereas the OIBDA margin expanded 200 basis points to 10%.

Segment Performance

Content Group revenue, which comprises Entertainment, Cable Networks, and Publishing, grew 12% to $2,601.2 million.

Entertainment revenue jumped 15% to $2,081.5 million driven by a 25% increase in Network advertising revenue and a 19% growth witnessed in CBS Interactive display advertising revenue.

Cable Networks revenue climbed 8% to $368 million reflecting an increase in rate and subscriber growth across Showtime Networks and CBS College Sports Network.

Publishing revenue dropped 6% to $151.7 million due to softness in the retail market, partially offset by the increase in digital sales of Publishing content, which includes e-books, audio downloads and stand-alone applications.

Local Group revenue, which comprises Local Broadcasting and Outdoor, rose 12% to $997.7 million.

Local Broadcasting revenue soared 19% to $605.5 million due to an improved advertising environment and higher political advertising. CBS Television Stations revenue surged 29% to $323.7 million, whereas CBS Radio revenue grew 9% to $282.7 million.

Outdoor revenue climbed 3% to $392.2 million due to favorable foreign currency translation.

Financial Aspects

CBS Corporation ended the quarter with cash and cash equivalents of $872.7 million, total long-term debt of $6,970.8 million and shareholders’ equity of $9,046.1 million. The company generated free cash flow of $659.8 million during the quarter. Cash flow from operating activities was $700.7 million during the quarter.

CBS Corporation’s strong brand and highly complementary mix of assets augur well for its long-term growth prospects. It is leveraging its strong balance sheet to deploy cash in higher growth interactive businesses.