CBS: Positioning for "Future Growth" (Because None Now)

Another holding-pattern quarter.  CBS businesses dead in the water: Small gains in some offset by shrinkage in others.  Financial engineering (stock buybacks and a significantly lower tax rate) driving modest growth in EPS.  Digital strategy sound, but immaterial to financial performance.  Company continues to promise revenue and operating income growth, but shows no signs of being able to achieve it.  Release

Key Points

  • Revenue: $3.3 billion, down 3% y/y: lower TV licence fees, shutdown of UPN network, and sale of some radio and TV stations.
  • EBITDA flat: $758 million vs. $756 million.  Growth in TV, Outdoor, and Publishing offset by decline in Radio.
  • EPS: $0.48 cents, a few cents above Street consensus, up 14%, driven by share repurchase and a significantly lower tax rate, which is not sustainable.
  • Free cash flow dropped to $266 million from $432 million: lower tax refunds, lower cash interest, higher capex and programming investments.
  • Guidance: Steady: Q4 revenue down, operating income flat.  Long-term: Low-single digit growth revs, mid-single-digit growth operating income, high-single-digit growth EPS.  Worth noting that company shows no signs of actually being able to achieve this guidance.

Conference Call:

Sumner: Everything’s great! Expect more buybacks, dividends. Les Moonves “very very good friend,” and “incomparable”!

Les: Reeling off acquisitions: SignStorey, building out digital, building out digital billboards. Digital’s going to help us accelerate rev growth. Radio, as previously noted, “challenging”

: People don’t understand network business. Changing landscape good for our business. WGA update: In serious negotiations. “But make no mistake, we are prepared.” Get ready for repeats and “alternative programming options” (reality shows, ad infinitum).

Digital, Tivo, Web, etc great for us, because people are still watching our shows – just in different outlets. Big broadcast networks do better with advertisers than cable. Scatter ads up “north of 35%” of upfront prices. Advertisers know we’re essential. DVR helps us because it helps us count and monetise our viewers. DVR users watch more broadcast TV. Broadcasters getting 78% of all primetime playback (still don’t see how that resolves the ad-skipping problem, though). Very pumped about Sunday’s Patriots Colts game. (Us too). NFL CPMs up double digits from last year. FIOS push will be great for us because Verizon, AT&T going to pay a lot for Showtime.

Internet: Dramatic increases across the board. Streams up triple digits on as a hole. Online streams spike before broadcast as people catch up on old shows before watching new ones. This is incremental. We’re syndicating clips across CBS web networks:  Promotional and revenue-generating.  last.FM  experiencing “rapid growth” audio streaming up 400% for last year, 100% from acquisition. Time spent 150% since acquisition.

Radio: Lousy, down 7%. Unacceptable. But encouraging signs in larger markets. Making aggressive moves into digital. Digital offers great promise: Streaming radio can help us diversify from drive-time based business. Additive (except for when drivers abandon radio altogether for iPod etc,). Wildfire, other crises spike regular radio listening and online.

Billboards: Doing great. Revs up 3%, earnings up 13% y/y. Digital big here, too: Doing digital display in London Tube.

Publishing: Still thriving, thanks to The Secret and Joel Osteen. Digital “warehouse” project proceeding.


Why is scatter up so much? And when can radio turnaround? Les — standing too far away from the speaker phone — we sold a lot of inventory in the spring, so there’s not much inventory. And new ratings methodology helping to improve our leverage. We believe 08 will be year of growth in radio. “We do.”

When will political ads start kicking in?
Already started — seeing ads up in Boston because of New Hampshire primary. We don’t own any Iowa stations so no effect there.

Is guidance actually down 4% for Q4? Well, sort of. We’re just acknowledging that TV revs overall have been down because fewer stations.

What’s up with digital billboard rollout? 6,000 boards by end of year, and margins are much better. We’re getting much better than 3X capex revenue we had predicted, which we thought would give us internal rate of return in high teens.

Les, stock is down $6 since summer. Content’s king and you’ve invested in that — and you’ve given Street dividends and buybacks. So what can you do to appease the rabble? Les continuing to struggle with the speaker phone, but think he said something like: I know! It’s a real problem.

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