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AMC Networks (AMCX) Q4 Earnings, Revenues Beat, Increase Y/Y

Zacks Equity Research

AMC Networks Inc. AMCX reported fourth-quarter 2018 adjusted earnings of $1.92 per share that beat the Zacks Consensus Estimate of $1.81. The figure also increased 14.3% year over year due to higher operating income and reduction in share count.

Total revenues of $772.8 million comfortably beat the Zacks Consensus Estimate of $760.6 million and increased 6.3% year over year due to increase in International and Other revenues offset by decline in National Networks revenues.

Quarter Details

National Networks revenues (76.7% of total revenues) declined 2.2% year over year to $592.7 million. However, segment adjusted operating income increased 7.3% year over year to $209.3 million. The increase was due to lower operating expenses offset by higher restructuring expense.

Notably, in the reported quarter, operating expenses were lower due to lower programming expenses, which were $29 million compared with $38 million in the year-ago period.

Advertising revenues increased 1.4% year over year to $272 million owing to higher pricing offset by lower delivery. Notably, the company is looking to introduce ad tools that are expected to help advertisers optimize their ad space and provide target ads. This is expected to drive ad dollars, which is a positive.

However, distribution revenues decreased 5.1% year over year to $320 million owing to decline in content licensing revenues, offset by increase in subscription revenues.

International and Other revenues (24.4%) surged 48.6% year over year to $188.4 million. The increase was due to revenue contributions from AMC Networks’ acquisitions of Levity ($39 million) and RLJE ($28 million), partially offset by unfavorable foreign currency fluctuations. Shows like The Terror and Fear The Walking Dead continued to top the ranking charts.

Additionally, segment adjusted operating income increased 43.9% year over year to $8.5 million. However, operating expenses increased due to the acquisition of Levity and RLJE.

Notably, AMC Networks’ series - Killing Eve on BBC America emerged as the “sleeper hit” of 2018. The success of the series drove viewership, thereby improving ratings. Killing Eve was nominated as the best television series – drama at this year’s Golden Globes.

Additionally, the series Doctor Who, which returned to BBC America in the reported quarter, witnessed 50% growth in viewership. Moreover, the company recently renewed its partnership with BBC Studios to continue co-producing natural history programs like Planet Earth and Frozen Planet.

In 2018, three of the top six drams belonged to AMC Networks. Moreover, focus on content quality helped the company easily distribute its content across both linear and digital platforms. Further, AMC Networks’ streaming service, Acorn TV, helped the company generate additional revenue streams by reaching more users.

Operating Details

In the reported quarter, technical and operating and selling, general and administrative expenses increased 4.5% and 9.9% year over year to $402.2 million and $163.4 million, respectively. Additionally, restructuring expense was $42.7 million compared with $2.24 million as AMC Networks is carrying out various restructuring initiatives to improve cost efficiency.

Non-GAAP operating income increased 6.6% year over year to $219.1 million and operating margin expanded 10 basis points (bps) year over year to 28.3%.

Balance Sheet

As of Dec 31, 2018, AMC Networks has cash and cash equivalents of $554.9 million compared with $564.7 million as of Sep 30, 2018. Total debt almost remained flat at $3.15 billion sequentially.

Cash flow from operating activities in 2018 was $606.5 million compared with $385.7 million in fourth-quarter 2017. Additionally, free cash flow in the year was $502.4 compared with $287.1 million in the year-ago period.

Zacks Rank & Stocks to Consider

Currently, AMC Networks carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader consumer discretionary sector include PlayAGS, Inc. AGS, YETI Holdings, Inc. YETI and NTN Buzztime, Inc. NTN. While PlayAGS and YETI sport a Zacks Rank #1 (Strong Buy), NTN Buzztime carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank  stocks here.

Long-term earnings growth rate for PlayAGS, YETI and NTN Buzztime is projected to be 12%, 16% and 20%, respectively.

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