Viacom Misses on Both Lines
Viacom Inc. (VIAB) declared dismal financial results for the third quarter of 2012 with both the top and bottom lines missing the Zacks Consensus Estimates. Slowdown in Media Networks and Filmed Entertainment business has resulted in such somber financial results.
Net income from continuing operation in the quarter was $523 million or 99 cents per share compared with $574 million or 97 cents per share in the prior-year quarter. Adjusted EPS of 97 cents was also below the Zacks Consensus Estimate of $1.00.
Total revenue in the reported quarter was $3,241 million, down 14% year over year and also below the Zacks Consensus Estimate of $3,511 million. Quarterly operating income was $903 million, down 8% year over year.
During the reported quarter, Viacom bought 14.8 million common shares for $700 million. At the end of the third quarter of fiscal 2012, Viacom had $774 million in cash & cash equivalent and $8,147 million in outstanding debt on its balance sheet, compared with cash & cash equivalents 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 0.52 compared with 0.46 at the end of fiscal 2011.
Media Networks Segment
Quarterly revenue of $2,266 million decreased 5% year over year, mainly hurt by weaker advertising and ancillary revenues. Quarterly operating profit was $923 million, down 9% year over year.
Domestic affiliate revenues declined 1% but worldwide affiliate revenues nudged up 1% in the reported quarter. Domestic advertising revenue dropped 7% year over year but worldwide advertising revenue fell 9% year over year.
Filmed Entertainment Segment
Quarterly revenue dropped 29% year over year to $1,066 million, buoyed by lower theatrical and license fee revenues, partly offset by higher ancillary revenues. Quarterly operating profit was $42 million, up 14% year over year.
Global Theatrical revenue fell by a whopping 52% year over year, primarily due to a lack of hit movie releases compared to the year-ago quarter. Worldwide Home Entertainment dipped 8% coupled with steep decline in television license fees by 24%. However, Worldwide Filmed Entertainment ancillary revenues jumped 44% to $104 million in the quarter, fueled by higher digital revenues.
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, Viacom has a Zacks #3 Rank, implying a short-term Hold rating on the stock.
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