CBS Corporation (CBS), a diversified media conglomerate, recently reported fourth-quarter 2009 results. The quarterly earnings, which remain in line with the Zacks Consensus Estimate, posted a double-digit growth on a year-over-year basis on the heels of cost containment initiatives.
 
The quarter highlights improving trends in advertising due to renewed strength in the auto and financial services sectors, rise in traffic at CBS Interactive sites with subscriber growth registered across Cable Networks. Management remains confident about the growth momentum continuing in fiscal 2010.
 
Due to its exposure to publishing, radio and television broadcasting, and outdoor billboard businesses CBS Corporation remains highly susceptible to the advertising market. Although political advertising remained sluggish at CBS stations in the quarter, non-political advertising delivered growth. The company indicated that CBS stations could see a substantial improvement in political advertising due to mid-term elections in 2010.
 
Moreover, the retransmission and affiliate fees from CBS’s cable and satellite partners for the right to retransmit broadcast programming has been another source of revenue for the company.
 
Quarterly Earnings versus Zacks Consensus
 
CBS Corporation’s quarterly earnings of 25 cents a share remains in line with the Zacks Consensus Estimate and climbed 19% from 21 cents posted in the prior-year quarter. In terms of earnings surprise history, the quarterly earnings had outperformed the Zacks Consensus Estimate by 13.6% in the third quarter but had remained in line in the second quarter of 2009.
 
The current Zacks Consensus Estimate for first-quarter 2010 is 6 cents a share. Over the last 30 days, the Zacks Consensus Estimate has remained stagnant with only 2 out 22 analysts covering the stock raising their estimates, and only one analyst lowering his expectation. The revisions in estimates did not have any material impact on the Zacks Consensus Estimate.
 
There has been an uptrend in the company’s performance as noticed from the earnings trend in fiscal year 2009. In the first quarter, CBS delivered a loss of 8 cents a share, which improved to earnings of 8 cents in the second quarter and then more than doubled to 25 cents in the third quarter.
 
On a reported basis, including one-time items, quarterly earnings came in at 9 cents a share, down 55% from 20 cents posted in the year-ago quarter.
 
Quarterly Performance
 
CBS Corporation’s total revenue climbed 4% sequentially to $3,498.4 million, but dropped marginally by 0.8% year-on-year. However, the rate of year-on-year decline sharply decelerated from 11% and 14% experienced in the second and the first quarters of fiscal year 2009, respectively. In third-quarter 2009, revenue had fallen by 0.8%.
 
Adjusted operating income before depreciation and amortization rose 11% to $569.2 million, reflecting higher affiliate and subscription fees, including retransmission revenues, and fall in expenses.
 
Segment Performance
 
Content Group revenue, which comprises Entertainment, Cable Networks, and Publishing, grew 3% to $2,382.4 million.
 
Entertainment revenue jumped 4% to $1,815.3 million driven by advertising growth (up 8%) at the CBS Television Network, partly offset by lower CBS Interactive advertising sales (down 5%).
 
Cable Networks revenue climbed 8% to $347.1 million reflecting an increase in rate and subscriber growth across Showtime Networks and CBS College Sports Network.
 
Publishing revenue dropped 10% to $220 million.
 
Local Group revenue, which comprises Local Broadcasting and Outdoor, declined 8% to $1,163.7 million.
 
Local Broadcasting revenue dipped 8% to $680 million due to lower radio and political advertising sales. CBS Television Stations revenue fell 3% to $358.2 million, whereas CBS Radio revenue slid 12% to $322.2 million, partially due to the sale of slower-growth radio stations in mid-sized markets. Non-political advertising sales jumped 11% for CBS Television Stations.
 
Outdoor revenue tumbled 8% to $483.7 million due to sluggishness in advertising demand worldwide.
 
Financial Aspects
 
CBS Corporation ended fiscal year 2009 with cash and cash equivalents of $716.7 million, total long-term debt of $6,996.9 million and shareholders’ equity of $9,019.4 million. The company generated free cash flow of $295.4 million during the fourth quarter and $827.8 million during fiscal year 2009. Cash flow from operating activities was $939.4 million during the year.
 
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