Viacom Q2 earnings down; ad revenue up


ViacomViacom reported lower earnings 5/1 for its fiscal Q2, but the company’s cable networks unit returned to ad growth after a period of quarterly declines. The media and entertainment giant, led by CEO Philippe Dauman, also saw a 38% drop in the home entertainment biz and a 20% drop in film revenue. Executive chairman Sumner Redstone is Viacom’s controlling shareholder.

Adjusted profit from continuing operations of $481 million was down from $535 million in the same period a year earlier. Analysts expected earnings of $475 million. Revenue was $3.14 billion, down 6% from the $3.33 billion recorded in the same quarter last year. Analysts had looked for $3.19 billion.

Theatrical revenue was down 15% amid lower carryover revenue compared to that from Mission Impossible: Ghost Protocol in the year-ago period. Revenue from the quarter’s theatrical releases, Hansel and Gretel: Witch Hunters and G.I. Joe: Retaliation, was higher than that from year-ago titles.

Media networks (including MTV, VH1, CMT, Logo, BET, Centric,

Nickelodeon, Nick Jr., TeenNick, Nicktoons, Nick at Nite, Comedy Central, TV Land, SPIKE, Tr3s, Paramount Channel and Viva) revenue rose 2% (US and global) due to an increase in advertising, affiliate and ancillary revenue. Domestic affiliate revenues increased 3%. Excluding the impact of digital distribution arrangements, which are affected by the timing of available programming, the domestic affiliate revenue growth rate was in the low-double digits.

Said Sumner Redstone: “Viacom continues to build momentum by developing unparalleled entertainment content for audiences throughout the world. I am fully confident that our proven executive team will deliver even greater success, by driving Viacom’s vibrant businesses and returning outstanding value for shareholders.”

Said Dauman: “Viacom’s ongoing strategy of focused investment in creative content and broad multiplatform distribution of our brands accelerated improvement in our business in the quarter. Viacom’s media networks are continuing to develop innovative new original programming for all of our audiences, and building unique experiences for our established brands that move beyond the television screen. As a result, ratings are up at several networks, and advertising revenues have returned to year-over-year growth, up two percent, with eight points of sequential improvement over the December quarter. Paramount is also executing on its strategic plan, and successfully positioned G.I. Joe: Retaliation, Hansel and Gretel: Witch Hunters and Pain & Gain for

global success, and the year ahead remains strong, with audiences eagerly awaiting our upcoming tentpole releases-Star Trek Into Darkness and World War Z.”

Adjusted diluted earnings per share from continuing operations for the quarter were $0.96, a 2% decline from the prior year’s comparable quarter.

For the quarter ended 3/31, Viacom repurchased 11.7 million shares under its stock repurchase program, for an aggregate purchase price of $700 million. As of 3/31, Viacom had 487 million shares of common stock outstanding. As of 4/30, Viacom had $3.13 billion remaining in its $10 billion stock repurchase program.

Noted Marci Ryvicker, Wells Fargo Senior Analyst:

Consolidated revenue was $3.135B (-5.9%) vs. our $3.180B (-4.5%) and Consensus of $3.173B (-4.7%), with the miss all in Film (not a big driver). Media Networks was better than expected – with the big positive in advertising (+2% consolidated).

—Media Networks revenue was $2.233B (+2.0%) vs. our $2.210B (+0.9%) with domestic and international advertising revenue each coming in at +2%–better than our -1.5% and +1.0% estimates, respectively. Domestic affiliate fee revenue was in line with our+3% expectation–excluding tough digital distribution comps, affiliate revenue grew LDD.

—Film revenue was $941MM (-19.5%) vs. our $999B (-14.5%). Theatrical revenue was $276MM (-15%) vs. our $293MM (-10%)–the overall decline was due to lower carryover revenue in the quarter (vs. the carryover from Mission Impossible: Ghost Protocol last year). The press release points out that new releases in the quarter did better than new releases in last year’s CQ1. Home entertainment revenue was $256MM (-38%) vs. our $291MM (-30.0%); and TV licensing revenue was $295MM (-6.9%) vs. our $301MM (-5.0%).

—Adjusted operating income was $847MM (-9%) vs. our $821MM (-12%) and Consensus of $837MM (-10%). The beat was in both segments, with Media Network OI of $873MM (-2.2%) vs. our and Consensus $841MM (-5.8%) and Film OI of $65MM (-43.5%) vs. our $60MM (-48.0%) and Consensus of $75MM (-34.8%).

—EPS were $0.96 vs. our $0.94 and the Street’s $0.95, with the beat driven by higher Adjusted OI. The company also repurchased $700MM worth of shares, in line and similar to last quarter.

BOTTOM LINE – The big positive this quarter is clearly the lift in advertising revenues at the Media Networks segment, which should drive the stock today.