AMC Networks Beats Earnings Estimates, U.S. Ad Revenue Falls 9.9 Percent

The Walking Dead _ Season 8, Episode 6 - Andrew Lincoln - Publicity-H 2017
Jackson Lee Davis/AMC

The company, whose latest quarter included the first half of season eight of the hit AMC show 'The Walking Dead,' also unveiled a deal with streamer fuboTV.

Cable channel company AMC Networks on Thursday reported an adjusted profit of $105 million for the fourth quarter, or earnings per share of $1.68, compared with $92 million in the year-ago period, or earnings per share of $1.30.

Analysts had on average expected earnings of $1.49 per share. But investors seemed to focus on the company's U.S. advertising revenue drop of 9.9 percent, which one analyst said was more pronounced than Wall Street had predicted, as the stock was down 3.7 percent as of 11 a.m. ET. 

"Even as Walking Dead audiences began to decline, it was still such a huge program, with super-premium [ad rates] that quarters with Walking Dead were up, quarters without were down," Sanford C. Bernstein analyst Todd Juenger said in an investor note. "That has now reversed."

Fourth-quarter earnings before adjustments came to $146 million ($2.33 per share), compared with $14 million (20 cents per share). The increase in adjusted earnings per share was "primarily related to a decrease in diluted shares, a decrease in income tax expense and a decrease in miscellaneous," the company said.

The quarterly figure included $38 million in charges related to the write-off of programming assets, compared to $5 million in the year-ago period. Management on the earnings call later said the latest quarter's charges were mostly related to the previously canceled AMC series Hell on Wheels.

Management reiterated its confidence in its programming lineup and advertising demand for its popular shows drawing a big audience among people aged 18-49. 

The fourth quarter included the first half of season eight of the hit AMC show The Walking Dead. AMC Networks' U.S. advertising revenue dropped 9.9 percent to $269 million, "principally related to lower delivery partially offset by higher pricing."

Discussing the Walking Dead franchise, AMC Networks CEO Josh Sapan on the earnings call said it continues to have "unique strength and endurance that exists well beyond the linear TV show." He said: "For the sixth season in a row, it remains the biggest show on TV," while the franchise also includes Fear the Walking Dead, two talk shows, a gaming business, live events and "a number of other story-driven digital brand extensions, with more to come." 

The company also unveiled a deal with streaming video service fuboTV, which will start offering AMC Networks' channels, namely AMC, BBC America, Sundance, IFC and WE tv, and streaming services Sundance Now, dedicated to prestige TV series, films and documentaries, and Shudder, which serves thriller, suspense and horror enthusiasts. This marks the first time fuboTV is offering subscription VOD services to its subscribers.

"AMC Networks delivered record financial results in 2017, increasing net revenues and adjusted operating income for the seventh consecutive year since becoming a public company and generating significant free cash flow that we are using to invest in key strategic initiatives and our networks," Sapan said about Thursday's financials. 

He also touted recent distribution deals with streaming services, including fuboTV and Philo, saying they make AMC Networks "available on more virtual [distributors] than any other independent programmer, proving the value of our discrete brands and our desirable, high-quality content."

About the performance of the company's channels, the exec said: "Our core networks continue to perform well, with AMC delivering four of the top 10 dramas on cable in 2017, with The Walking Dead, Fear the Walking Dead, Better Call Saul and Into the Badlands. AMC Premiere continues to gain traction, with YouTube TV recently joining Comcast Xfinity in making our ad-free AMC streaming option available to its subscribers."

Sapan also touted the company's growing digital reach. "Our owned streaming services Sundance Now and Shudder are seeing healthy subscriber growth, and their momentum, coupled with the growth of the other streaming services we have invested in, including Acorn TV, Urban Movie Channel, and the BBC and ITV's Britbox, highlights consumer demand for subscription streaming services with specialized content," he said. "As we continue to evolve and adapt in a world of changing viewer consumption habits, we believe AMC Networks occupies a position of unique strength and are confident that our size, our focus and our portfolio of assets will enable us to continue to deliver strong financial results to our shareholders."

The comment about size was seen by one observer as a reference to continued focus in the entertainment industry on mergers and acquisitions. Some bankers and analysts have suggested AMC Networks could be a takeover target or look to grow further itself.

AMC Networks on Monday actually offered to take control of Robert Johnson's RLJ Entertainment, with an eye to taking the company private in a $60 million deal. AMC is looking to exercise an option to purchase the outstanding shares of RLJ that it does not already own after making a $65 million investment in the firm in November 2016 in the form of loans via its Digital Entertainment Holdings unit. That deal gave it a 26 percent minority stake, with an option to purchase outright control. 

Management on Thursday's call said it had no plans to reduce advertising loads on its networks. NBCUniversal had on Wednesday unveiled such a plan.

Sapan also said AMC's networks are must-haves for pay TV distributors and reiterated his confidence in the company's focus on a few select strong brands.