Earnings scorecard: Viacom Inc.

Zacks

Following the fiscal third-quarter 2012 (ended June 30, 2012) earnings announcement on August 3, most analysts covering Viacom Inc. (VIAB) have remained bearish on the stock. Operational challenges in both the Media Network and Filmed Entertainment segment are the primary reason for the revised outlook. 

Third Quarter Highlights

Net income from continuing operations was $523 million or 99 cents per share, compared with $574 million or 97 cents in the year-ago quarter. Adjusted EPS came in at 97 cents, falling short of the Zacks Consensus Estimate at $1.00.

Total revenue of $3,241 million was down 14% year over year, and also below the Zacks Consensus Estimate of $3,511 million. Operating income decreased 8.0% year over year to $903 million.

Agreements of Analysts

Over the past 30 days, nineteen out of 24 estimates for the fourth quarter of fiscal 2012 have declined. Similarly, ten out of 12 estimates for the first quarter of fiscal 2013 have moved lower.

The past 30 days have seen 25 of 27 estimates for fiscal 2012, 25 out of the 27 estimates decline, while 24 of 27 for fiscal 2013 also moved lower.

Currently, the Zacks Consensus Estimate for the fourth quarter of fiscal 2012 is pegged at $1.19. The projected annual growth is 12.30%. For the first quarter of fiscal 2013, the Zacks Consensus Estimate of $1.24 indicates an annualized growth of 16.75%.

Magnitude of Estimate Revisions

The Zacks Consensus Estimate for the fiscal fourth quarter of fiscal 2012 is $1.19 per share, which is down 6 cents in the past 30 days, while the estimate for the fiscal first quarter of 2013 has declined by 2 cents in that time to $1.24. 

The Zacks Consensus Estimate for fiscal 2012 has declined 8 cents in the past 30 days to $4.21 per share, while the Zacks Consensus Estimate for fiscal 2013 has slumped 15 cents to $4.82.

Our Recommendation

We believe that Viacom is well positioned for long-term growth as it continues to benefit from its predominately cable networks-based business model, strong affiliate fee revenue growth, strong share repurchase plan, multi-platform content, and is one of the fastest growing traditional ad media companies.

However, stiff competition from other media companies like News Corp. (NWSA) and Time Warner Inc. (TWX) along with flop movie releases and mounting debt may act as headwinds for the stock going forward. We thus maintain our long-term Neutral recommendation on Viacom.

Currently, VIAB has a Zacks #3 Rank, implying a short-term Hold rating on the stock.

About Earnings Estimate Scorecard

As a PhD from MIT, Len Zacks proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/

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