Viacom (VIAB) beats consensus, led by its cable networks; may split-up as soon as 1Q06

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 |  About: Viacom Inc. (VIA)
by: David Strahlberg

Viacom (ticker: VIAB) reported results on April 19, 2005 for the first quarter of 2005.

Results 4Q04 vs. 4Q03:

  • EPS: $0.36 vs. $0.29 (+24%)
  • Consensus EPS was $0.31
  • Revenue: $5,576.7M vs. $5,298.3M (+5%)
  • Consensus revenue was $5420M
  • Operating Income: $1,125.8M vs. $1,054.6M (+7%)
  • Operating margin: 20.2% vs. 19.9% (+30bps)
  • Net income from continuing operations: $585M vs. $618.4M (-5%)
  • Net margin from continuing operations: 10.5% vs. 11.7% (-120bps)
  • Reported Net income: $585M vs. $710.5M (-18%)
  • Reported Net margin: 10.5% vs. 13.4% (-290bps)
  • Free cash flow: $828M vs. $847M (-2%)

Revenue breakdown 4Q04 vs. 4Q03:

  • Cable: $1,708.3 vs. $1,431.1 (+19%)
  • Television: $2,141.2 vs. $2,256.8 (-5%)
  • Radio: $462.8 vs. $455.1 (+2%)
  • Outdoor: $429.1 vs. $403.3 (+6%)
  • Entertainment: $891.1 vs. $843.1 (+6%)

OIBDA breakdown 4Q04 vs. 4Q03:
OIBDA is Operating Income before Depreciation & Amortization

  • Cable: $695.4 vs. $592.9 (+17%)
  • Television: $341.1 vs. $366 (-7%)
  • Radio: $197.2 vs. $206.5 (-5%)
  • Outdoor: $69.3 vs. $68 (+2%)
  • Entertainment: $77 vs. $70.4 (+9%)

OIBDA margin breakdown 4Q04 vs. 4Q03:

  • Cable: 40.7% vs. 41.4% (-70bps)
  • Television: 15.9% vs. 16.2% (-30bps)
  • Radio: 42.6% vs. 45.4% (-280bps)
  • Outdoor: 16.2% vs. 16.9% (-70bps)
  • Entertainment: 8.6% vs. 8.4% (+30bps)

Operating Income breakdown 4Q04 vs. 4Q03:
Operating Income is OIBDA minus Depreciation & Amortization

  • Cable: $622.5 vs. $520.4 (+20%)
  • Television: $304.4 vs. $330.8 (-8%)
  • Radio: $189.5 vs. $199.2 (-5%)
  • Outdoor: $16.5 vs. $13.8 (+20%)
  • Entertainment: $58.5 vs. $53.4 (+10%)

Operating margin breakdown 4Q04 vs. 4Q03:

  • Cable: 36.4% vs. 36.4% (+10bps)
  • Television: 14.2% vs. 14.7% (-40bps)
  • Radio: 40.9% vs. 43.8% (-280bps)
  • Outdoor: 3.8% vs. 3.4% (+40bps)
  • Entertainment: 6.6% vs. 6.3% (+20bps)

Revenues by type (% of total) 4Q04 vs. 4Q03:

  • Ad sales: 61% vs. 61%
  • Affiliate fees: 13% vs. 12%
  • Feature Films: 11% vs. 10%
  • TV license fees: 5% vs. 7%
  • Publishing: 3% vs. 3%
  • Other: 7% vs. 7%

2Q05 Guidance:

  • Revenues: mid-single digit growth
  • Operating income: mid-single digit growth
  • EPS: high single-digit growth

Quick comments:

  • Break-up:  VIAB is still exploring the possibility of splitting the company into two, and expects to complete the analysis in 2Q05; the split could happen as early as 1Q06
  • Change in classification:  Theme parks (previously in Entertainment) and International Pay TV (previously in Television) are now included in Cable Networks; previous results have been re-stated to reflect this change
  • Corporate expenses: Increased 34% to $49 million from $37 million in 1Q04
  • Tax Rate:  The tax rate declined t0 40.8% from an adjusted tax rate of 41.2% in 1Q05; last year's tax rate was 20.4% before adjusting for a $111 million tax benefit
  • Stock repurchase: The company is authorized to repurchase up to $8 billion in Class A and Class B shares; during 1Q05, VIAB purchased 39.1 million shares for $1.4 billion; during the first two weeks of 2Q05, VIAB purchased 2.8 million shares for $99 million; $4.5 billion is still available for repurchase
  • Television: Revenues declined against a tough comp against last year's Super Bowl broadcast (at CBS) and political advertising; VIAB believes that it is
    heading into the TV advertising season with the strongest ratings and
    demographic mix in 10 years
  • Infinity: recently announced its acquisition of KER-FM in San Fransisco
  • MTV: recently announced the launch of MTV Overdrive, a hybrid channel delivered via broadband with VOD capabilities; MTV recently launched its 100th channel in sub-Saharan Africa
  • Logo:  gearing up for the launch of Logo, a channel targeting the gay and lesbian community
  • Acquisitions:  interested in buying cable networks aimed at older audiences and Internet sites focused on gaming and online communities

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