CBS Reaches 13-Year High as Profit Surges on Pay-TV Fees
Stock Chart for CBS Corp (CBS)
CBS Corp. (CBS), the most-watched television network, soared to a 13-year high after rising revenue from pay-TV systems and new Internet streaming agreements lifted second-quarter profit by 11 percent.
To increase revenue and reduce its dependence on advertising, CBS is demanding cable and satellite-TV services pay higher fees to retransmit the company’s broadcast and cable programming to subscribers. That’s led to conflicts such as the current dispute with Time Warner Cable Inc. (TWC) that saw some pay-TV customers briefly lose service this week.
“We are well on our way to another record-setting year,” Chief Executive Officer Leslie Moonves said on a conference call yesterday. “Our programming is commanding top dollar across every platform and our non-advertising revenue sources are more and more meaningful all the time.”
Net income increased to $472 million, or 76 cents a share, from $427 million, or 65 cents, a year earlier, New York-based CBS, owner of the most-watched TV network, said in a statement. Analysts had forecast 72 cents, the average of 27 estimates compiled by Bloomberg.
Second-quarter sales increased 11 percent to $3.7 billion, compared with the $3.51 billion average of 24 estimates. In the past year, the company signed streaming agreements with Netflix Inc. (NFLX), Amazon.com Inc.’s LoveFilm and Hulu LLC.
The NCAA men’s college basketball championship known as March Madness aired during the period, later than a year ago, contributing to higher advertising.
“Ad trends remain consistently strong,” Paul Sweeney, an analyst with Bloomberg Industries, said in an e-mail. “Domestic and international syndication continues to be a bright spot, and retransmission fees represent a second revenue stream with plenty of runway ahead.”
The company is selling its billboard operations in Europe and Asia to Los Angeles-based private equity firm Platinum Equity LLC for about $225 million. The sale comes as CBS plans to split off its U.S. billboard unit, convert it to a real estate investment trust and sell shares in the new entity.
During the quarter, non-advertising sources of revenue increased to 43 percent of total sales compared with 30 percent in past years, Moonves said on the call. As CBS relies less on advertising, an economically sensitive source of revenue, the company will re-evaluate its debt ratios, Chief Operating Officer Joe Ianniello said.
The company had long-term debt of $5.95 billion as of June 30, according to the statement.
Profit at CBS’s entertainment division, which includes the broadcast network, increased 1.6 percent to $391 million, fueled by an 18 percent jump in sales to $2.01 billion. Revenue from licensing of reruns and pay-TV fees soared.
“It was clearly the entertainment division” that led CBS to exceed expectations, David Bank, an analyst at RBC Capital Markets in New York, wrote in an e-mail. Bank recommends buying CBS shares. “That was a combo of retrans and digital distribution.”
CBS and Time Warner Cable agreed to extend their negotiations for a new contract until 5 p.m. New York time on Aug. 2.
Income at CBS’s cable division, home to its Showtime premium cable channel, rose 10 percent to $202 million on sales that increased 16 percent. Local broadcasting, which includes the company’s TV and radio stations, boosted profit by 4 percent as revenue fell.
CBS’s Simon & Schuster publishing division almost tripled profit to $20 million as sales were unchanged.
“Simon & Schuster is a great content business for us and fits very well inside CBS,” Moonves said.
The company, which has announced a $5.1 billion increase to its share buyback program, plans to continue to use excess cash for repurchases, Ianniello said.
“They continue to return gobs of cash to shareholders,” Sweeney said.
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