Viacom Reports Higher Quarterly Profit, Revenue
NEW YORK - Viacom on Friday reported higher fiscal third-quarter earnings and revenue that handily exceeded Wall Street expectations as its cable networks unit continued to grow advertising and affiliate revenue.
The latter's strength positively surprised analysts with momentum driven in part by recent deals with digital distributors, such as Netflix, mirroring digital momentum highlighted in the latest earnings report from CBS Corp., which is also controlled by Sumner Redstone. Viacom's film unit recorded mixed results.
"There is no doubt Viacom is at the top of its game," said president and CEO Philippe Dauman on a conference call.
He vowed that there is more room to grow revenue from digital distribution deals with the likes of Netflix and Hulu in the U.S. and abroad.
As a result, he projected high single to low double digit growth in affiliate fee revenue for years to come starting from this year's higher base. He also said profit margins on digital distribution deals are in excess of 75 percent.
Viacom's latest quarter included 19 percent growth in overall affiliate fee revenue, which was "much higher than our 8.5 percent estimate," said Credit Suisse analyst Spencer Wang. "We believe that the upside is likely related to foreign exchange [factors] and digital revenue - e.g. revenue from licensing content to digital affiliates such as Netflix and Hulu." BTIG analyst Richard Greenfield estimated that digital deals added about $70 million in revenue in the latest quarter.
Entertainment giant Viacom posted a quarterly adjusted profit from continuing operations of $583 million, up 35 percent from the year-ago period. Before adjustments that eliminated one-time items that affect the comparability of the two quarters, earnings from continuing operations rose 33 percent to $574 million.
Operating profit at the company's media networks segment jumped 27 percent to $1.03 billion, but the film unit's operating profit declined from $69 million to $49 million.
The latest quarter included $14 million of "employee separation costs attributable to the media networks segment," Viacom said without disclosing how much of that was due to the departure in the quarter of MTV Networks CEO Judy McGrath. It did say though that the figure included "accelerated vesting of certain equity-based compensation awards." A spokeswoman declined to comment further.
Viacom's revenue rose 15 percent to $3.77 billion driven by a 16 gain in the networks division, including a 12 percent U.S. advertising revenue improvement, and a 13 percent increase in the film unit. Management said advertising trends remain solid in the current quarter, and it should again rise in the double-digits in the U.S.
Quarterly film results benefited from higher TV license fees and home entertainment results, offset by a 9 percent decline in theatrical revenue from such titles as Thor, Super 8, Kung Fu Panda 2 and the latest Transformers release. The decline was mainly due to the timing of film releases. "The prior year period benefited from strong carryover revenues from DreamWorks Animation's How to Train Your Dragon whereas Transformers: Dark of the Moon was released in the final week of the fiscal 2011 third quarter, which will result in the majority of the film's theatrical revenues occurring in the fiscal fourth quarter," the company said.
Discussing the recent launch of a Paramount Pictures animated film arm, Dauman said "the timing is ripe for this move." He cited the company's reinvigorated studio and "abundant creative vigor," highlighting that the first animated release is expected in 2014 with budgets for the one animation film per year of up to $100 million.
While Viacom's MTV didn't have a new season of Jersey Shore in the latest quarter, the network's ratings continued to rise. Dauman highlighted a slew of hits, such as Teen Mom, and touted Thursday night's return of Jersey Shore.
He also highlighted new hit shows on other Viacom networks, such as Comedy Central's Workaholics, TV Land's Happily Divorced and VH-1's Mob Wives and Single Ladies.
Said executive chairman and controlling shareholder Redstone: "I am very pleased with Viacom's outstanding results. Our strategic focus and consistent investment in creative content are continuing to drive our growth."
"The breadth of hit programming found across Viacom's media network portfolio continues to expand with top-rated shows and tentpole events on MTV, Nickelodeon, Comedy Central, BET and TV Land, as well as many of our international networks, all of which contributed to strong advertising growth and a robust advertising upfront performance," said Dauman in a statement, also lauding Paramount Pictures for being the first studio ever to have a record six consecutive $100 million-plus domestic box office movies and being the first studio to cross the $1 billion U.S. box office milestone for the fifth year in a row.
Asked about the blurring of differences between Viacom and CBS, which were separated in 2006, but are now competing in some businesses, such as in film, and are both paying dividends these days, Dauman simply said that the split is "ancient history" now, and his team's strategy is playing out well.
"In addition to our creative and operational success, Viacom is in the best financial shape in its history and has furthered its commitment to return cash to our shareholders with the recent increase in our dividend and the acceleration of our stock buyback program," Dauman also said Friday.
Redstone on Friday's call once again lauded Viacom for having found its creative and operating stride and called Dauman his "close friend" and "one of the wisest, if not the wisest man, I've ever met in my life."