Viacom Posts Higher Film Profit, U.S. Ad Revenue as CBS Deal Talks Continue

Michael Kovac/Getty Images
Viacom CEO Bob Bakish

The company, which is led by CEO Bob Bakish and has been in talks with CBS Corp. about a recombination, returns to domestic ad growth after a five-year slump and says Paramount remains on track for a full-year profit for the first time in four years.

Viacom, the company behind Paramount Pictures and such cable networks as MTV, Nickelodeon, BET, Comedy Central and Paramount Network, on Thursday reported better-than-expected fiscal third-quarter earnings.

Its film unit posted its 10th quarterly bottom line improvement in a row, and the firm returned to U.S. advertising growth for the first time since the fiscal third quarter of 2014.

Viacom reported its latest financials amid merger talks with CBS Corp., which like Viacom is controlled by the Redstone family's National Amusements. CBS will post its latest financials after the market close Thursday. Observers therefore initially expected the deal talks to be completed by Thursday morning and a deal to be unveiled together with the earnings, but sources said the talks are continuing with a focus on the stock exchange ratio, basically the price. One source said final word could come by next week.

Viacom management started the call by saying it wouldn't comment on potential mergers and acquisition. CEO Bob Bakish started his remarks by touting that the company has made "progress on our evolution," highlighting that "we are thrilled with what’s going on at Paramount." He also promised "a new era of advertising growth at Viacom," touting a strong upfront and gains in the firm's advanced advertising services business, which management said is now a business worth several hundred million dollars.

Viacom on Thursday posted adjusted earnings of $484 million, or $1.20 per share, for the quarter ending June 30, compared with $475 million, or $1.18 a share, in the year-ago period. Wall Street had on average expected Viacom to report adjusted earnings of $1.07 per share.

Quarterly revenue rose 4 percent to $3.36 billion, with U.S. advertising revenue in the company's cable networks unit up 6 percent, but affiliate fee revenue down 1 percent due to subscriber declines, "partially offset by higher contractual rates and OTT and studio production revenues." 

“Viacom delivered another strong quarter, as our core businesses and investments in strategic priorities fuel our growth and evolution," Bakish said. "Importantly, we returned domestic advertising revenue to growth, which is a direct result of the strategy we have been executing for the last two years and the significant progress we have made in scaling Advanced Marketing Solutions. Paramount’s momentum also continues, keeping us on track to deliver full-year profitability" for the first time since 2015.

Amid the CBS deal talks, he added: "As this quarter shows, Viacom’s brands are strong, our strategy is delivering, and our investments continue to position us well for the future.”

Bakish would lead the combined CBS-Viacom if a deal is reached. Viacom's management isn't expected to comment on the state of talks during its earnings conference call Thursday morning. 

Viacom's film unit posted adjusted operating income of $85 million for the fiscal third quarter, up 93 percent from $44 million in the year-ago period. Film unit revenue rose 14 percent to $877 million. Licensing revenue increased 29 percent, driven by library product and growth in TV production, while home entertainment revenue jumped 35 percent, "primarily" benefiting from the release of Bumblebee. Theatrical revenue fell 27 percent though, which Viacom said "reflected the strong performance of Rocketman and Pet Sematary, which was more than offset by the performance of A Quiet Place in the prior-year quarter."

Viacom's media networks unit posted a 6 percent adjusted operating income drop to $748 million on revenue of $2.5 billion, with the company citing the impact of "marketing for current and upcoming original programming launches, as well as investments in key growth initiatives."

Looking ahead, Bakish touted his team's focus on improving networks ratings with the help of hit shows, such as Paramount Network's Yellowstone, and such brand acquisitions as Nickelodeon's takeover of Garfield this week.  

Asked about Paramount, he called it an important creative hub and a "material asset" for Viacom, saying: "We are entering into a new phase of growth and vitality." He touted the fiscal year 2020 film release slate as particularly strong, mentioning such titles as Gemini Man, the next Terminator film, the Top Gun sequel, which the CEO said "looks incredible," and highlighted that the studio's TV production arm has 26 TV shows ordered. 

Beyond fiscal 2020, he said Paramount's pipeline looks "phenomenal." 

Asked how big an impact upcoming streaming service Disney+ would have on Nickelodeon, Bakish said that, "their pricing does look very competitive." But he said Viacom believes that the market is segmenting. "There will be choice, and competition will be intense," but Viacom will play in various spaces — from big bundled services to free streaming, while Disney will be strong in the SVOD space. "We feel good," he concluded.

Pluto TV, which Viacom acquired for $340 million early in the year, had 18 million monthly active users as of the end of July, a gain of 50 percent from the time the acquisition was unveiled, management also highlighted on Thursday.

Asked about the U.S.-China trade war, Bakish said there has been "no impact to date" on Paramount. He mentioned that the studio has "no big titles until the fall," meaning there is time for the countries to sort things out. 

Bakish also signaled he expects more financial and operational progress ahead. Said the CEO: "We are just getting to an inflection point."

Viacom's stock in early trading was up 3.5 percent at $30.71.