Viacom Beats on Increased Global Ad Revenue

Nov.11.10 | About: Viacom Inc. (VIAB)

Viacom Inc. (VIA.B) today declared financial results for the fourth quarter of 2010 with significant year-over-year increase of both top-line and bottom-line. Importantly, worldwide advertising revenue was $1.17 billion, up 7% year over year. Viacom has also decided to sell its Harmonix gaming unit, which developed the Rock Band video game brand.

Fourth quarter of 2010 adjusted net income from continuing operation was $461 million or 75 cents per share compared to a net income of $432 million or 71 cents per share in the prior-year quarter. Quarterly adjusted EPS of 75 cents was well above the Zacks Consensus Estimate of 69 cents.

Quarterly total revenue was $3,330 million, up 5% year over year. This was also better than the Zacks Consensus Estimate of $3,302 million. Top-line growth of Viacom was primarily due to revenue growth of both Media Networks and Filmed Entertainment segments.

Quarterly adjusted operating income was $837 million, up 4% year over year, driven by the solid performance of the Media Networks segment reflecting higher advertising and affiliate fee revenue. This was partially offset by higher programming costs.

At the end of fiscal 2010, Viacom had $837 million of cash & cash equivalents and $6,752 million of outstanding debt on its balance sheet compared to $298 million of cash & cash equivalents and $6,773 million of outstanding debt at the end of fiscal 2009. At the end of fiscal 2010, debt-to-capitalization ratio of Viacom was 0.42 compared to 0.43 at the end of fiscal 2009.

Media Networks Segment
Quarterly revenue of $2,128 million was up 8% year over year. This was mainly driven by solid growth in affiliate fees and advertising sales. Worldwide affiliate revenues grew 10% in the reported quarter. Domestic and Worldwide advertising revenue increased 8% and 7%, respectively, from the prior-year quarter. Worldwide Ancillary revenue grew 1% year over year. Quarterly operating profit was $873 million, up 9% year over year.

Filmed Entertainment Segment
Quarterly revenue of $1,231 million was up 1% year over year. Worldwide home entertainment revenue was down 13% year over year. Theatrical revenue was up 3% year over year. Worldwide television license fees increased 18% year over year. Quarterly operating profit was $52 million compared to an operating profit of $73 million in the year-ago quarter.

Recommendation
We maintain our long-term Neutral recommendation for Viacom. Currently it is a short-term Zacks #2 Rank (Buy) stock. This was mainly due to improved viewership rating for Viacom’s cable channels like BET and MTV, which resulted in higher advertising revenues. Increase in advertisement expenses by several enterprises will benefit the media companies including Viacom in the near-term.