Viacom Inc. (VIA.B) declared blockbuster financial results for the second quarter of 2011. Quarterly net income from continuing operations was $376 million or 63 cents per share compared with a net income of $255 million or 42 cents per share in the prior-year quarter.
Adjusted earnings per share (EPS), excluding debt extinguishment costs, were 72 cents, which significantly beat the Zacks Consensus Estimate of 61 cents in the reported quarter.
Quarterly total revenue was $3,267 million, up 20% year over year and was well ahead of the Zacks Consensus Estimate of $2,984 million. Significant increase in the top line was primarily attributable to improved performance in the Media Networks and Filmed Entertainment segments along with growing profit margins.
Quarterly operating income was $760 million, up 37% year over year driven by the higher profit from the Film Entertainment and Media Networks segments.
During the reported quarter, Viacom bought 11.4 million common shares worth $500 million. At the end of the second quarter of 2011, Viacom had $1555 million of cash & cash equivalent and $6,935 million of outstanding debt on its balance sheet compared with $911 million cash & cash equivalent and $6,752 million of outstanding debt at the end of fiscal 2010. Debt-to-capitalization ratio at the end of the reported quarter was 0.43 compared with 0.42 at the end of fiscal 2010.
Media Networks Segment
Quarterly revenue increased 11% year over year to $2,082 million. This was mainly driven by solid growth in affiliate fees and advertising sales. Worldwide affiliate revenues grew 9% in the reported quarter. Domestic and Worldwide advertising revenue increased 11% and 12%, respectively, from the prior-year quarter. Worldwide Ancillary revenue climbed10% year over year. Quarterly operating profit was $806 million, up 13% year over year.
Filmed Entertainment Segment
Quarterly revenue of $1,226 million was up 38% year over year. Higher theatrical and home entertainment sales led to the significant upside in revenue. Worldwide home entertainment revenue surged 38% year over year driven by higher number of releases during the quarter.
Theatrical revenue shot up 50% year over year supported by strong box office performance at Paramount Pictures. Ancillary revenue leaped 25% year over year. Television license fees rose 30%. Quarterly operating profit was $39 million versus a loss of $83 million in the year-ago quarter.
Recommendation
Viacom is well positioned for the long-term growth as it continues to benefit from its predominately cable networks-based business model, strong affiliate fee revenue growth, global brands, multi-platform content, and being the fastest growing traditional ad media.
However, stiff competitions fromother media companies like News Corp. (NWSA) and Time Warner Inc. (TWX) along with slow economic recovery may act as headwinds for the stock going forward.
We, thus, maintain our long-term Neutral recommendation for Viacom. Currently, Viacom has a Zacks #2 Rank, implying a short-term Buy rating on the stock.
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