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Entertainment unit drives CBS to record Q4'17 revenue

Driven by gains at three of its four segments, CBS Corp. scored a double-digit gain in generating record revenue during the fourth quarter of 2017.

The media conglomerate reported an 11% revenue advance to $3.92 billion during the three months ended Dec. 31, 2017, up from $3.52 billion in the final quarter of 2016.

Results were strong at its primary entertainment unit, which includes the CBS (US) broadcast network, CBS Television Studios and CBS Television Distribution, as revenues climbed 18% year over year to $2.82 billion from $2.39 billion a year ago. Content licensing and distribution revenues jumped 38% year over year behind growth in domestic and international licensing sales. Affiliate and subscription fee revenue soared 40%, led by higher station affiliation fees and growth from digital initiatives, including CBS All Access, which along with its Showtime OTT counterpart, now count nearly 5 million combined subscribers, and third-party live television streaming offerings.

Advertising, bolstered by the mid-November acquisition of Network Ten in Australia, posted a 4% increase. COO Joe Ianniello on the company's Feb 15 earnings call said ad revenue was flat at CBS in the fourth quarter, but the broadcaster generated more than $4 billion for the year. That was in line with guidance and "consistent with what we achieved in each of the last five years, demonstrating once again the continued strength of network advertising."

Fourth-quarter entertainment operating income grew 25% to $465 million, reflective of the revenue growth, partially offset by an increased investment in programming, including costs for CBS All Access.

At the cable networks, comprising Showtime Networks, CBS Sports Network (US) and Smithsonian Networks, revenue grew 9% to $547 million, lifted by the performance of the Showtime streaming service and licensing of the premium network's content.

Operating income declined 8% to $201 million in the quarter, behind increased programming investments.

Simon & Schuster publishing revenue grew 12% to $235 million, driven by higher print book sales and digital audio sales. Bestselling titles included "Leonardo da Vinci," "Principles" and Stephen King's "It."

Reflective of the improved revenue base, publishing operating income expanded 22% to $44 million.

The local media segment sustained a 14% revenue decrease to $450 million from $526 million in the 2016 comparable quarter, which benefited from record political advertising sales. Retransmission-consent revenue partially offset the decline. Segment operating income decreased 37% to $137 million, in the face of the decline of high-margin political ad dollars.

The company registered a fourth-quarter net loss of $41.0 million, or 10 cents per share, versus a net loss of $113.0 million, or 26 cents per share, in the 2016 fourth quarter.

Results reflected the impact of the split-off of CBS Radio in November 2017, and a $129 million charge related to the recent enactment of the new U.S. tax law.

The S&P Capital IQ fourth-quarter consensus estimate for GAAP EPS was $1.15 and $1.14 on a normalized basis.

Full-year revenue increased 4% to a record $13.69 billion from $13.17 billion in 2016.

The top-line growth was fueled by a 26% gain in affiliate and subscription fee revenues, boosted by a 27% jump in retransmission-consent revenues and fees from CBS network affiliates; Showtime Network’s distribution of the Floyd Mayweather/Conor McGregor pay-per-view boxing match; gains from the streaming services; and an 8% rise in content licensing and distribution revenues. The increases were partially offset by a 9% decline in advertising revenues, mostly tied to tough comparisons with 2016, which benefited from the telecast of Super Bowl 50 and record political advertising sales.

CBS recorded net earnings of $357.0 million, or 88 cents per share, during 2017, down from $1.26 billion, or $2.81 per share in 2016.

The S&P Capital IQ consensus EPS estimate for 2017 was $4.32 and $2.19 on a normalized and GAAP basis, respectively.

Bottom-line results were impacted by a net loss of $105 million from the split-off of CBS Radio and market value adjustment of $980 million recorded prior to the split-off to reduce the carrying value of the property. Results in 2016 included a net impairment charge of $427 million at CBS Radio.