Viacom Posts $137M Quarterly Film Loss, 8 Percent U.S. Ad Revenue Drop as Earnings Fall

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Earnings meet the lowered range set by the entertainment conglomerate, which recently named Bob Bakish acting CEO designate and is exploring a recombination with CBS Corp.

Viacom on Wednesday reported fiscal fourth-quarter earnings that met its reduced guidance range and came in slightly ahead of much-lowered Wall Street expectations.

The company, which has started exploring a possible recombination with CBS Corp., posted net earnings from continuing operations of $225 million, or 63 cents per share, down 71 percent from $884 million, or $2.21 cents per share, in the year-ago period. Adjusted earnings per share fell to 69 cents per share. The company had reduced its forecast to a range of 65 cents-70 cents per share. Analysts had expected earnings of 65 or 66 cents per share.

Most analysts had sharply reduced their quarterly earnings expectations for Viacom after a profit warning from the company, which included a $115 million impairment for the unreleased movie Monster Trucks.

The quarter also included restructuring costs for "certain senior executives," which one analyst immediately said was likely a reference to severance for former CEO Philippe Dauman and outgoing interim CEO Tom Dooley. "The pre-tax charge of $206 million reflects restructuring costs in connection with the separation of certain senior executives," Viacom said. "The restructuring charge includes the cost of separation payments of $138 million and the acceleration of equity-based compensation expense of $68 million."

Foreign exchange issues also had a big effect on the latest results as the Brexit's downward pressure on the value of the pound reduced the dollar revenue of Viacom's big U.K. business, among others. And a large year-ago SVOD deal also caused a tough comparison.

Viacom's quarterly revenue declined 15 percent to $3.23 billion, with U.S. advertising revenue dropping 8 percent "reflecting a decline in television ratings at select networks, partially offset by higher pricing." 

Filmed entertainment revenue declined 24 percent to $774 million in the latest quarter, "driven by lower theatrical revenues due to the strong international performance of Mission: Impossible — Rogue Nation in the fourth quarter of 2015." Theatrical revenue fell 55 percent to $203 million. But home entertainment revenues increased 23 percent to $199 million. Full-year film revenue fell 8 percent, "principally due to lower theatrical and home entertainment revenues, partially offset by a 12 percent increase in licensing revenues."

The film unit posted an operating loss of $137 million in the quarter, compared with adjusted operating income of $122 million in the prior-year quarter due to the charge and lower revenue. The full-year film unit loss amounted to $445 million, compared with an operating profit of $111 million in the prior year.

Media networks unit revenue declined 11 percent to $2.48 billion in the latest quarter, "resulting from declines in affiliate and advertising revenues that were partially offset by higher ancillary revenues." Full-year revenue dropped 5 percent to $9.94 billion amid a 4 percent decline in worldwide advertising revenue and a 7 percent decrease in affiliate revenue.

Media networks operating profit for the quarter fell 27 percent to $750 million primarily due to the lower revenue, while full-year results dropped 16 percent to $3.48 billion for the same reason.

Wall Street's focus will be much less on the latest results, but on any conference call comments on a possible CBS deal. “The state of CBS is extremely strong, which is more important now than ever given changes in our industry and as we consider a potential recombination with Viacom,” CBS Corp. chairman and CEO Leslie Moonves said on last week's CBS earnings call. “We are still in the very early stages. If it looks right and is structured properly, it could be an attractive opportunity.”

Wall Street also will look for any insight and body language from recently designated acting CEO Bob Bakish, who starts that role next week, on a deal. Bakish "will be responsible for accelerating the growth of Viacom's industry-leading networks and reinvigorating Viacom's brands," the company said when he was appointed.

Bakish also got the new role of president and CEO of Viacom Global Entertainment Group, or GEG, which combines the international businesses with Viacom's Music and Entertainment Group. One company source said the added role was designed to express commitment to Bakish in case a CBS deal can be reached. "In our view, this suggests the recombination with CBS is still on track, giving the board some flexibility while also showing a commitment to Bakish," echoed Jefferies analyst John Janedis.

Viacom had announced in September that interim CEO Tom Dooley would depart in mid-November, which followed the ouster of Philippe Dauman in the battle for control of the media giant.

National Amusements, through which Sumner Redstone and daughter Shari Redstone control Viacom and CBS, has asked both companies to begin researching a possible recombination.

"Viacom ended the 2016 fiscal year well into our transition, as the company’s industry-leading data program increased in size and sophistication, ratings stabilized at several of our key networks and Paramount has begun to rebuild a full, dynamic slate of films," said Dooley. "In addition, our international media networks business is stronger than ever, and we will continue to broaden our footprint and apply our successful strategies to additional territories in attractive markets."

He added: "With new leadership across the company, continued investments in new content, technologies and targeted acquisitions, and an expanded board of directors, I have great confidence in Viacom’s next phase, as the company explores the exciting possibilities ahead."

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