CBS Posts Strong Quarter Aided by Cost Control

| About: CBS Corporation (CBS)
This article is now exclusive for PRO subscribers.

CBS Corporation’s (NYSE:CBS) continued effective operating and cost-containment efforts helped post strong fourth-quarter 2010 results, beating the Zacks’ expectations. The quarterly earnings of 46 cents a share outdid the Zacks Consensus Estimate of 44 cents and surged 77% from 26 cents earned in the year-ago quarter.

Quarter Highlights

CBS has made a positive comeback in each quarter in 2010 outshining its performances in the previous quarters. CBS Corporation indicated that the advertising marketplace has remained strong both locally and nationally. Management expects growth momentum to continue in fiscal 2011.

Given the better-than-expected results and a rebounding advertisement market after the Great Depression, a positive sentiment may be palpable among the analysts covering the stock, and we could witness a rise in the Zacks Consensus Estimates in the coming days.

Due to its exposure to publishing, radio and television broadcasting, and outdoor billboard businesses, CBS remains highly susceptible to the advertising market. To mitigate this, the company is striving to add diverse revenue streams to hedge against economic cycles.

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. This is evident from the company’s recent 10-year programming deal with Comcast Corporation (CMCSA - Analyst Report), the cable operator, whereby the latter will retransmit the signals of CBS television network, the Showtime Networks and CBS College Sports, across its various platforms, to meet consumers’ growing demand for TV, Video on Demand and online content.

CBS is eyeing more than $250 million in retransmission fees in fiscal 2012. Management said that retransmission consent revenue for fiscal 2010 exceeded the $100 million target.

Behind the Headline

Revenue climbed 11% to $3,900.4 million from the prior-year quarter, and beat the Zacks Consensus Estimate of $3,853 million. The increase in revenue was attributable to a 12% rise in advertising sales to $2,623.1 million, 21% growth in content licensing and distribution revenue to $796 million benefiting from second-cycle domestic syndication sales, and 0.8% jump in affiliate and subscription fees to $425.5 million.

Adjusted operating income before depreciation and amortization (OIBDA) increased 32% to $770.1 million, whereas OIBDA margin expanded 300 basis points to 20%.

Revenue by Segment

Content Group revenue, which comprises Entertainment, Cable Networks, and Publishing, jumped 10% to $2,620.6 million from the year-ago quarter due to revenue growth across all segments.

Entertainment revenue grew 11% to $2,020.6 million from the year-ago quarter, reflecting a growth of 29% in television license fees, 8% in Network advertising revenue and 18% in CBS Interactive display advertising revenue. Entertainment OIBDA soared 31% to $249 million.

Increase of rates and growth in subscriptions at Showtime Networks and CBS College Sports Network helped Cable Networks revenue increase 6% to $368.3 million. Cable Networks OIBDA rose 10% to $168.6 million.

Publishing revenue climbed 5% to $231.7 million attributable to the increase in digital content sales. Publishing OIBDA rose 32% to $20.1 million.

Local Group revenue, which comprises Local Broadcasting and Outdoor, rose 14.5% to $1,332.5 million.

Local Broadcasting revenue increased 21% to $821.5 million from the year-ago quarter due to an improved advertising environment and higher political advertising. CBS Television Stations advertising revenue surged 28%, whereas CBS Radio advertising revenue grew 14%.

Local Broadcasting OIBDA rose 43% to $321.8 million. Management forecasted that for first-quarter 2011 Radio revenue is trending to be up in low to mid single digits and Televisions Stations advertising revenue is pacing to remain flat compared with the prior-year quarter.

Outdoor sales also increased 6% to $511 million and reflected an improvement in the Outdoor advertising sector. Outdoor OIBDA jumped 22% to $100.8 million. For first-quarter 2011, Outdoor Group revenue is pacing up mid to high single digits.

Other Financial Details

CBS Corporation ended the quarter with cash and cash equivalents of $480 million, total long-term debt of $6,000.8 million, and shareholders’ equity of $9,820.6 million. The company generated free cash flow of $39.9 million during the quarter. The company also commenced a $1.5 billion share repurchase program in January 2011.

Cash flow from operating activities was $161.1 million during the quarter. Capital expenditures for the quarter were $121.2 million. For fiscal 2011, capital expenditures are anticipated between $250 million and $300 million.

Currently, we have a long-term Neutral rating on the stock. However, CBS holds a Zacks #2 Rank, which translates into a short-term Buy rating.