CBS reported 8 cents on revenue of $3.01 billion against consensus of 7 cents and $3.05 billion. EBITDA of $387 million was at the top of end expectations and includes about $20 million of what could be considered one-time charges. Most importantly to the outlook for the stock, the company maintained 2009 EBITDA guidance. Many investors anticipated at least a lowering of the midpoint of the targeted EBITDA range. While the low end seems likely to be the final result, maintaining guidance is a win for CBS longs. The stock was trading up after hours, appropriately so in my opinion.
While CEO Les Moonves is always one to spin optimistically, his tone on the call was noticeably more positive than the rest of major TV companies that have reported. He noted ongoing improvement in pacing of ad sales at local radio and TV stations. He says that revenue on inventory sold in the upfront is flat vs. a year ago. He claims scatter advertising for 3Q is up sharply vs. a year ago with pricing above last year’s upfront. More so than any other media executive, Moonves is pointing to positive signs in advertising.
CBS is a bit unique in that its TV content businesses (CBS Network and Showtime) are gaining viewers and ratings. This is helping the company gain market share of advertiser and consumer dollars. It is also creating a pipeline of content to be sold in other distribution channels. 2H09 syndicated TV sales will benefit.
CBS is also benefiting from tight operations. Operating expenses are falling and the financial team has done a good job refinancing the balance sheet and eliminating near-term liquidity risk.
Keeping in mind that only Les Moonves can excitedly talk about the collector’s edition DVD of all six seasons of NCIS, the tone of the conference call was remarkably positive and confident.
CBS has tons of operating leverage. We saw it to the downside in 2Q. On an 11% revenue decline, EBITDA fell 50% and EPS dropped 84%. The bull case is that as the economy strengthens and advertising improves, operating leverage will reverse sharply to the good.
While there is no guarantee that the economy and advertisers will cooperate, investors can wait knowing that CBS is being well managed and its content is maintaining its viewer, listener, and browser base.
CBS is widely held by clients of Northlake Capital Management, LLC including in Steve Birenberg’s personal accounts.