Update: Viacom Misses On Earnings

Aug. 7.14 | About: Viacom Inc. (VIAB)

Summary

Viacom reported FY 3Q2014 revenue decline of 7% to $3.4 billion and a 6% increase in diluted EPS to $1.40 from the prior year quarter.

Revenue was hurt by a 26% decline in revenue in the filmed entertainment division.

My original articles outlined Viacom as an undervalued company with extremely strong free cash flow, but the company has had fairly disappointed results so far in 2014.

Viacom (NYSE:VIA) (NASDAQ:VIAB) reported third quarter fiscal year 2014 revenue decline of 7% to $3.4 billion and a 6% increased in diluted EPS to $1.40. The filmed entertainment division was worst performer with a 26% decline in revenue to $856 million. The number of movies and the timing of releases hurt revenue for the quarter, but should benefit the company in FY 4Q2014 with the release of Transformers: Age of Extinction and Teenage Mutant Ninja Turtles. The media networks division also had weak revenue growth of just 1%, due to flat world-wide affiliate revenue fees. Free cash flow fell 23% to $560 in the fiscal year third quarter and down 31% to $1.36 billion through the first nine months in the fiscal year.

During the quarter, Viacom return nearly $1 billion to investors through stock buybacks and dividends. In the third quarter, the company purchased 10 million shares for $850 million. Since FY 2011, Viacom has repurchased 217.4 million shares for $12.85 billion and still has $7.15 billion left under its share repurchase program. The filmed entertainment division will rebound in FY 4Q2014 from strong movie releases and a weak prior year quarter comparison. FY 4Q2014 domestic box office revenues have already more than doubled FY 4Q2013 results.

I've written two articles on Viacom, "Viacom Quietly Becoming A Cash Cow" and "Viacom Holds The Most Value Compared To Media Content Peers". The weak 3Q2014 results don't change my view that Viacom is undervalued and a strong company. Revenues will rebound significantly in FY 4Q2014 with 2 blockbuster movies being released in the quarter. Transformers, released on 6/27/14, brought in over $1 billion in world-wide sales, making it the highest grossing film this year. The $7.15 billion still left in the stock buyback program can reduce total outstanding shares by more than 20%, which will help improve EPS. Viacom is set-up to finish the fiscal year on a high note.

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