Viacom Earnings Beat Estimates as Film Unit Swings to Profit

ViacomCBS CEO Bob Bakish
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ViacomCBS CEO Bob Bakish

The company, led by CEO Bob Bakish, declined to address current talks with CBS Corp. about a potential merger during an analyst call.

Viacom on Wednesday reported better-than-expected fiscal second-quarter earnings as its film unit returned to a quarterly profit.

Revenue also beat estimates in the company's latest financial report that Wall Street will dissect for signs of how the turnaround strategy — unveiled more than a year ago by CEO Bob Bakish and focused on six flagship brands — is playing out.

The company, which remains in talks about a possible merger with CBS Corp., reported adjusted net income attributable to the company of $641 million and adjusted diluted earnings per share of 92 cents, which exceeded the average Wall Street analyst forecast of 79 cents per share. Quarterly revenue also exceeded analysts' estimates.

Paramount Pictures, Viacom's film unit, which has benefited from a growing TV production business and had such releases in the latest quarter as Annihilation and Sherlock Gnomes, swung to a profit, posting operating income of $9 million, compared with a year-ago loss of $66 million.

As expected, Bakish and other Viacom execs declined to take questions on the CBS deal talks from analysts during a morning conference call. Instead, they talked up Viacom's turnaround strategy, and its apparent success.

"We've taken many important steps to ensure we get the most out of our large and revitalized core business, including continually improving how we operate and organize our business," Bakish told analysts. On the movie front, he cited the "monster hit" Paramount had in John Krasinski’s A Quiet Place.

"This is the first film that was both produced and released under the new management team. ... That has shown up in the quality of the film, the cost discipline and the way it was marketed," he said. Bakish added Paramount already had a dozen movies in the pipeline for 2019, and expected the studio to get to 16 in all.

On the TV side, the Viacom head touted the media giant's prospects at the upcoming upfronts. "Supply will be tight, very tight. That, combined with the fact we're seeing very strong scatter pricing, suggests the upfronts will be strong, particularly as related to pricing," Bakish said.

"More broadly, the overall tone of the market is looking good. So we very much like how this is setting up," he added. The exec also touted a new cross-Viacom production studio business to create premium episodic content for flagship Viacom TV brands, and third-party platforms.

"We're going to much more aggressively tap into the huge demand for content," Bakish said. Earlier, when releasing its latest financial results, the studio highlighted its ability to improve profitability "through a modified release strategy that guided the successful release of The Cloverfield Paradox and the sale of international distribution rights of Annihilation."

It also mentioned that Paramount Television "delivered another strong performance this quarter, driving increased licensing revenues with the release of TNT's The Alienist, which drew 13 million viewers in its premiere, ranking as this season's number 1 new cable drama series in live+3 [ratings]."

Viacom's media networks unit, as expected, again posted a U.S. advertising revenue decline, of 3 percent, but worldwide ad revenue was unchanged from the year-ago period, as was distribution revenue. Ratings at the company have been impacted by a decline in overall pay TV subscribers, but MTV and BET continued to grow their ratings in the latest quarter.

As the possible merger talks with CBS continue, the Redstone family controls both Viacom and CBS. The companies' vice chair Shari Redstone has been speaking out about the benefits of scale. The firms, which separated in 2006, said on Feb. 1 they have formed independent board committees to explore a merger after in 2016 abandoning talks about such a deal.

CBS Corp. recently made a below-market opening bid for Viacom, which was immediately rejected. Beyond price, the management of a possibly combined company has been a key issue of debate in the talks. CBS Corp. wants its chairman and CEO Leslie Moonves and COO Joe Ianniello to run a merged company if a deal is reached, while Viacom and Redstone have been pushing for a role for Viacom boss Bakish.

April 25, 11:45 a.m. Updated with comments by Bakish made during an analyst call.