The "Show Stoppers" of the Quarter!

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Someone once rightly said, “The show must go on,” and to make sure that happens, the companies that help us enjoy the “shows” have to perform the way Viacom (NASDAQ: VIAB) recently did. Despite the dark clouds of dropping revenues hovering above its head, Viacom has managed to sail through with what many analysts would term as smart financial planning and foresight.

Viacom, the media company that owns several TV channels (MTV and Nickelodeon are the major revenue earners) and Paramount movie studio, recently announced their latest quarter earnings.  The company beat analyst expectations to show a 13% increase in net income amidst a major drop in advertising revenue.

The magic formula

With a sluggish period in the television ad world and increasing costs, some of the key factors that led to Viacom holding its ground included the fact that the major chuck of its revenues comes from charges paid by cable operators such as DirecTV and Comcast Corp. to air its programs. The increase in charges has played a significant role in mitigating the affects of decreasing ad revenue. The company’s advertising revenue saw a 6% dip, whereas the fees paid by the cable operators saw an approximate surge of 12%.

Also, the company has significantly cut its operating and other overhead costs. The overall net operating costs rose to about only 1 per cent which amounted to about $47 million. Although the company invested heavily in programming, the cost margin was reduced by lowering administrative and other such costs.

Finally, content was important to Viacom's succes.  Coming up with innovative ideas, such as improvised shows of their all time hit “SpongeBob Square Pants" and "Teenage Mutant Ninja Turtles,” might help in bolstering the viewership in one of their major pillars: Nickelodeon. Its Paramount movie division was also doing its bit in supplementing the operating income by having some major movies in the pipeline to be released in this lucrative “holiday” quarter. Some of the major names include "Rise of the Guardians," an animated movie produced by DreamWorks Animation SKG Inc., "Paranormal Activity 4,"  one of the sequels of the widely celebrated horror movie series, and "Jack Reacher,” among others. This division showed a 5% increase in revenue, which rose to $195 million.

Stand in the market

Even amidst rising speculation about VIACOM’s standing in the market, especially against giant competitors such as Walt Disney (NYSE: DIS), Time Warner (NYSE: TWX), and News Corp (NASDAQ: NWS), there are still plenty of reasons to invest in Viacom above the others.

Time Warner had a decent quarter, with a year over year growth of 2% fueled mainly by the growing cable division and reported a net income of $838 million dollars, or $0.86 per share, higher than analyst expectation of $0.82 per share.

News Corp. is on the brighter side of things with a reported billion dollar profit this quarter. It showed an 8% and 16% increase in advertising revenue and subscriber fees, respectively.  Net income was said to have increased to over $2 billion from an approximate$ 740 million.

Disney, the largest among all the competitors, announced a net income of $1.2 billion for the quarter, which has increased 14% since the same time last year.

In such a cutthroat market, Viacom still has a long way to go, with its only ray of hope being its affordable share price. If it can capitalize on its recent earnings, it can surely strengthen its position in the market in a more consolidated manner.

Earnings-Facts and figures

The 13% rise in net income in the current fiscal quarter was made possible by lowering company expenses which allowed it to offset a major drop in its advertising revenue sector.

The July-September quarter saw net income of $650 million, or $1.26 a share, compared to figures of $576 million, or $1 a share, a year ago. Adjusted earnings per share stood at $1.21 a share, which exceeded analyst expectations of adjusted earnings of $1.17 a share.

Revenue fell about 17% to $3.36 billion from about $4 billion, but a 26% slash in total expenses helped to make up for  the losses.

Quarterly operating profit was $933 million, 3% lower year on year. However, domestic affiliate revenues rose by 11%, and worldwide affiliate revenues rose around 12%.

Meanwhile, domestic and worldwide advertising revenue fell 6% and 7%, respectively.

Viacom also involved itself in a stock repurchase program, wherein it repurchased 14.2 million shares for a total price of $700 million this quarter, and a total of 59.9 million shares for a total price of $2.8 billion in the year ending this quarter.

A step forward

Although things have started looking up for Viacom, the problems of a mounting debt and lack of eventful movie releases and dwindling viewership could be major issues for the company to deal with. Having said that, I’d also like to add that the foresight and strategic upper hand shown by the company this quarter, coupled with some strict discipline, could lead this company to an enviable position in the market. I am hopeful of the company’s future; however, as of now, I would like to maintain a neutral stand on it.

Gargi27 has no positions in the stocks mentioned above. The Motley Fool owns shares of Walt Disney. Motley Fool newsletter services recommend Walt Disney and Time Warner. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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