Viacom Inc. (VIAB) declared excellent financial results for the second quarter of 2012 surpassing both the top and bottom line estimates. The strong performance was mainly fueled by higher revenues, increased margins and increased share repurchases.
Net income from continuing operation in the quarter was $588 million or $1.08 per share compared with $376 million or 63 cents per share in the prior-year quarter. Adjusted EPS of 98 cents was also above the Zacks Consensus Estimate of 90 cents.
Total revenue in the reported quarter was $3,331 million, up 2% year over year and also beat the Zacks Consensus Estimate of $3,317 million. The year-over-year upside in revenue was mainly attributable to the strong performance of the Media Networks affiliated revenue segments. Quarterly operating income was $932 million, up 22.6% year over year.
During the reported quarter, Viacom bought 14.7 million common shares for $700 million. At the end of the second quarter of fiscal 2012, Viacom had $1,135 million in cash & cash equivalent and $7,757 million in outstanding debt on its balance sheet compared with cash & cash equivalent of $1,021 million and outstanding debt of $7,342 at the end of fiscal 2011. Debt-to-capitalization ratio at the end of the reported quarter was 0.49 compared with 0.46 at the end of fiscal 2011.
Media Networks Segment
Quarterly revenue of $2,190 million increased 5% year over year. This was mainly driven by solid growth in affiliate fees, mitigated somewhat by reduced ancillary sales. Quarterly operating profit was $893 million, up 11% year over year.
Domestic and worldwide affiliate revenues climbed 15% and 17% in the reported quarter, respectively, mainly fueled by growth in digital sales and expansion in rates. Domestic advertising revenue crept up 1% year over year but worldwide advertising revenue remained flat year over year.
Filmed Entertainment Segment
Quarterly revenue dropped 5% year over year to $1,169 million, buoyed by lower theatrical and license fee revenues, partly offset by higher ancillary revenues. Quarterly operating profit was $115 million, up 195% year over year.
Theatrical revenue fell 19% year over year. However, Worldwide Filmed Entertainment ancillary revenue plummeted 41% year over year.
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, continuous hit movie releases, strong share repurchase plan, multi-platform content, and is one of the fastest growing traditional ad media.
However, stiff competitions from other media companies like News Corp. (NWSA) and Time Warner Inc. (TWX) along with slow economic recovery may act as headwinds for the stock going forward. We, thus, maintain our long-term Neutral recommendation on Viacom.
Currently, Viacom has a Zacks #3 Rank, implying a short-term Hold rating on the stock.
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