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CBS CEO Les Moonves said he’d consider selling CBS Outdoor, his gigantic outdoor billboard unit, if anyone wants to buy it, according to Bloomberg, even though the unit is stable and profitable.That’s probably because it’s a drag on earnings, as the data below show.
CBS reportedly wants $4 to $6 billion for the division, which supplies all those roadside hoardings and building signs you see everywhere. The unit booked $1.89 billion in revenue in 2011, 13 per cent of the company’s $14.3 billion in revenue.
But why would CBS want to get rid of such a large piece of its business? The answer can be found by looking at CBS’s operating income and impairment charges:
- CBS Outdoor
- Operating income after non-cash charges: $107 million.
- Depreciation and amortization charges: $235 million.
The unit carries the most depreciation and amortization charges of any inside CBS. Billboards are essentially a real estate business. Once you own the site, you’ve pretty much got it for life, but its value goes up and down based on factors you don’t control, including traffic patterns and the underlying value of local real estate.
Billboard companies tend to buy for the long haul; the current recession in real estate values has left them holding properties they bought high and are now priced low. And ongoing depreciation and amortization charges are scheduled regardless of the underlying performance of the boards.
CBS Outdoor’s operating income after amortization and depreciation is only 4 per cent of CBS’s total $2.5 billion in operating income. And revenues aren’t really growing.
Bottom line: CBS Outdoor may be profitable, but it’s going nowhere. And while’s it’s treading water, its non-cash charges are reducing net income and thus reducing CBS’s earnings per share.
That’s why CBS Outdoor is on the block, priced as low as two-times revenues.
Here’s the chart, click to enlarge:
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