‘Phenomenal Year’ For CBS Overshadowed By Q4 Finish


CBSIt was a phenomenal year for CBS Corp., with Chairman/CEO Les Moonves eager to tout the company’s “all-time highs in revenue, operating income, and earnings per share that came in above $4 for the first time in its history.

“As we begin 2017, I couldn’t be more excited about our growth prospects in the years ahead,” Moonves said.

Unfortunately, the full-year results were overshadowed by a fourth-quarter in which revenue moved to $3.52 billion from $3.59 billion, as CBS Inc. swung to a net loss of $113 million, compared to net earnings of $261 million in Q4 2015.

There’s an explanation for this, and it involves the letters “AM” and “FM.”

Operating income in Q4 shrunk to $484 million from $770 million, with comparability affected by a one-time pension settlement charge in the quarter and a gain from the sale of an internet business in China in Q4 2015.

On an adjusted basis, operating income actually improved 10%, to $733 million from $664 million during Q4 2016, reflecting growth from high-margin revenue including political advertising, retransmission fees, and fees from CBS Television Network -affiliated stations.

The main culprit for the statistically flat Q4 revenue: Ad revenue, which fell 3% due to CBS having three fewer Thursday Night Football games than the same period in 2015 and lower ratings from airing of NFL games in Q4 2016.

This was offset by political spending at CBS’s local television stations.

Thus, CBS’s Q4 net earnings from continuing operations were $271 million (63 cents per diluted share), down from $507 million ($1.07) from Q4 2015. That’s because CBS Radio is now shown as a discontinued operation — which may slightly throw off analysts’ EPS estimates for CBS Inc. in Q4 2016.

Taking the removal of CBS Radio into account, however, adjusted net earnings increased 9%, to $476 million ($1.11) from $436 million (92 cents) in Q4 2015.

Operating cash flow from continuing operations in Q4 was $337 million, down from $671 million. Free cash flow was $252 million, compared with $588 million in the year-ago period.

Local Media revenues rose 16% to $526 million during the quarter, thanks to record political advertising sales from federal and state elections and 9% growth in retransmission and subscription revenue, CBS said. Local Media operating income for Q4 surged 45%, to $216 million.

CBS Inc. also notes that it repurchased 25.4 million of its shares during Q4 in transactions totaling $1.5 billion.

The company also notes that it took a $211 million impairment charge during Q4 as a result of a September 2016 offer given to eligible former employees to make a one-time election giving them the present value of their pension benefits as a lump-sum distribution.

This is perhaps the biggest reason for the disappointing Q4 results, even after accounting for the shift in status for CBS Radio.

For the full year of 2016, revenue increased 4%, to $13.17 billion, thanks to an 8% increase in advertising revenues, led by the broadcast of Super Bowl 50 on CBS and record political advertising in 2016. Affiliate and subscription fees were up 9%, reflecting higher retransmission revenues and fees from CBS Television Network affiliated stations, which together were up 35%, as well as growth in digital distribution services.

Looking ahead, Moonves noted that it has a new retransmission deal and reverse comp agreement in place with Verizon for its FioS services, and extended its reverse comp deal with Meredith Corp. 

Oprah Winfrey
Oprah Winfrey, who will be added to the 60 Minutes roster of reporters in fall 2017

Moonves also noted that Oprah Winfrey will be added to CBS’s 60 Minutes roster of reporters and correspondents, starting in fall 2017.

“No other company is positioned to capitalize on the constant change in our business than CBS,” Moonves said on a conference call with Wall Street analysts on Wednesday afternoon (2/15).

Local media operating income for FY2016, which includes CBS O&O TV stations, grew to $618 million, from $487 million.

 Cable networks operating income in FY16 improved to $959 million, from $945 million.