Viacom Quarterly Earnings Beat Estimates as Company Explores CBS Merger

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Viacom CEO Bob Bakish

The company, led by CEO Bob Bakish, saw losses from its film unit decline while its TV business improved.

Viacom on Thursday posted its fiscal first-quarter earnings, a year after CEO Bob Bakish had unveiled a new strategy focused on the company's six flagship brands. 

The company reported adjusted net income attributable to the company of $535 million, up 34 percent thanks to a tax cut and a lower expenses line, compared to a year-earlier $396 million. The adjusted diluted earnings per share was $1.03, against a year-earlier $1.00. That beat a Wall Street analyst forecast of earnings at 98 cents per share.

The adjusted figures exclude severance costs in the year-ago period and a tax benefit in the latest quarter.

Viacom overall revenues fell 8 percent due to declines in filmed entertainment and media networks, its two main businesses. The film unit saw revenues fall 28 percent to $544 million on the number and mix of releases during the latest quarter. The company's film releases in the final quarter of 2017 included Daddy's Home 2 and Downsizing. The year-ago period included such theatrical releases as Arrival and Jack Reacher: Never Go Back.

Viacom's media networks unit saw revenues slip 1 percent to $2.56 billion, as U.S. advertising revenue continued to decline in the latest quarter, by 1 percent to $1.31 billion. Affiliate fee revenue was again an area of weakness as they fell 4 percent to $1.09 billion, amid recent carriage renewals.

Viacom executives during a Thursday morning earnings conference call chose not to answer direct questions from analysts on its exploration of a possible merger with CBS Corp., which the companies recently announced. At the same time, Bakish did respond to a question about the need for scale amid continuing industry consolidation.

"There's a lot going on in the industry, there's a lot of conversation about scale. But through that noise ... we're excited about the progress we're making, our asset mix and our competitive position, as we execute against our strategy to increase shareholder value," the exec told analysts.

"All that said, we will continue to look at M&A (mergers and acquisitions) and other partnership opportunities, because you can often get benefits of scale without acquiring a company, and we'll do so in a disciplined manner," added Bakish.

The Redstone family controls both Viacom and CBS, and 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 that they have formed independent board committees to explore a merger. 

"Since the last time the merger with CBS was explored (September-December 2016), much has changed in the ecosystem, making it more likely that Viacom is open to creating scale (pursuing Scripps Networks is an example)," Jefferies analyst John Janedis said in a recent report. "Ultimately, we expect a decision to come in a matter of weeks given disruption to the workforce."

Viacom's media networks unit has been focusing on improving ratings and advertising trends. "We believe we have reached the turning point in our domestic advertising story,” Bakish told analysts during the morning call.

Viacom recently secured carriage renewals with Altice on its Optimum and Suddenlink systems and with Charter Communications that the studio expects will boost TV ad revenue during the current fiscal year.

Bakish also addressed "ratings softness" at Nickelodeon, as younger TV watchers increasingly opt for online viewing. "Truth be told, it's not the first time we've seen softness at Nickelodeon, and we've turned it around," he said. The exec pointed to around 400 debut episodes across 15 series upcoming on Nickelodeon. 

Evercore ISI analyst Vijay Jayant in an earnings preview highlighted that during October and November, the company's audience share grew, with Nickelodeon up 16 percent, and MTV up 12 percent "thanks to new programming like Floribama Shore."

Feb. 8, 9:30 a.m. Updated with comments made by Viacom executives during an analyst call.