Viacom Earnings Beat Estimates as Film Unit Posts $38M Profit

Bob Bakish Viacom President and CEO - Getty - H 2018
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The company, led by CEO Bob Bakish, unveiled a multi-picture film deal with Netflix during an earnings call.

Viacom, led by CEO Bob Bakish, on Friday reported higher fiscal fourth-quarter earnings that exceeded Wall Street estimates.

The studio's Paramount Pictures division also unveiled a multi-picture film deal with Netflix during an earnings call, as Viacom overall becomes a content engine as part of its turnaround in fortunes. “Our priority is to expand our role as a major global content supplier,” Paramount Pictures head Jim Gianopulos said during the call, as the studio eyes new revenue streams for its traditional theatrical releases.

"As such, we’re exploring various new revenue streams in addition to our traditional theatrical releases as a producer of first-run films and television for other media platforms,” he added.

Terms of the new supply deal with Netflix were not disclosed, but Bakish noted Viacom has licensed product to Netflix for some years. During the call, Bakish also told analysts that Viacom had "turned around" its core business, with gains in audience share, U.S. distribution and Paramount across both film and TV.

He added Viacom was "accelerating growth initiatives" as it continued to scale and transform the studio. During the latest financial quarter, Paramount's film unit posted a $38 million profit for the quarter, led by the success of Mission: Impossible – Fallout, with its full fiscal-year loss narrowing. 

The entertainment conglomerate, controlled by the Redstone family, posted adjusted earnings from continuing operations of $400 million, or 99 cents per share, for the latest quarter, compared with $310 million, or 77 cents per share, in the year-ago period. Wall Street had on average forecast 95 cents per share in quarterly earnings.

Fiscal fourth-quarter revenue increased 5 percent to $3.49 billion, driven by double-digit gains at Paramount. Full fiscal-year revenue fell 2 percent to $13.26 billion though.

While stock in Viacom rose in pre-market trading, shares in the company slipped by 34 cents, or 1 percent, to $31.49 during mid-morning trading on the NASDAQ Exchange. 

Following up on the fiscal third quarter's theatrical success of A Quiet Place, Viacom's Paramount film unit had another strong quarter thanks to Mission: Impossible – Fallout. The film unit swung to adjusted operating income of $38 million in the quarter as box office rose 193 percent and licensing was up 3 percent amid continued growth at Paramount Television. 

Gianopulos told analysts that Paramount Pictures plans a diverse film slate for 2019 and 2020 that minimizes financial risk for the studio. "We make films for someone, or we make films for everyone," he said, as Gianopulos underlined a strategy to make targeted films, like A Quiet Place, or global tentpoles like Mission: Impossible - Fallout, which has grossed $790 million at the international box office.

For the full fiscal year, Paramount's film unit reported an adjusted operating loss of $39 million after an operating loss of $280 million in the previous year, and a loss of $445 million in the year before that.

Viacom's media networks unit returned to U.S. affiliate revenue and adjusted operating income growth in the latest quarter, allowing its adjusted operating profit to rise 2 percent to $708 million. "Lower programming expenses and the company's cost transformation initiative contributed to the first quarter of adjusted operating income growth at media networks in over three years," highlighted Guggenheim Securities analyst Michael Morris.

Quarterly advertising revenue fell 6 percent, including a 4 percent U.S. drop. But Wall Street is likely to focus on the 3 percent U.S. affiliate fee increase for the quarter given that past weakness in that area has been a concern for analysts. "On the affiliate fee side, management is boldly calling for growth (+1 percent) for domestic affiliate revenue, which would be the first quarter of growth in five quarters," Sanford C. Bernstein analyst Todd Juenger had said in his earnings preview.

During the analyst call, Bakish also backed calls for lower-cost skinny bundles of entertainment channels without broadcast or sports content for a fast-evolving U.S. pay TV market impacted by cord-cutters and cord-nevers. "I have long commented on the fact that sports, and broadcast for that matter, drives real costs and is a fundamental driver of pay increases in pay television, and there's a real opportunity for skinnier bundles, whether they exclude broadcast, sports or both," he said.

Nov. 16, 10:15 a.m. Updated with comments by senior Viacom execs during an analyst call.