Viacom 3Q Profit Tumbles on Advertising Declines, International Markets

Spongebob Nickelodeon
Courtesy of Nickelodeon

Viacom said net income in its third fiscal quarter fell 23% as the New York entertainment conglomerate suffered in comparison to a year-earlier quarter that contained a one-time gain and grappled with declines in advertising revenue as well as tougher conditions in its overseas operations.

The New York owner of Nickelodeon, MTV and the Paramount movie studio said profit fell during the quarter to $522 million, or $1.29 per share, compared with from $683 million, or $1.70 per share, in the year-earlier period. The year-earlier quarter contained a one-time gain of $285 million on the sale of its stake in the Epix cable network.

Excluding items, Viacom reported adjusted earnings of $475 million, or $1.18 per share, for the period, compared with $471 million, or $1.17 per share. Analysts had expected the company to earn $1.07 per share, according to estimates collected by Thomson Reuters.

Under CEO Bob Bakish, Viacom has been working to stabilize viewership of its TV networks, which skew toward younger consumers more prone to use emerging technologies like streaming video to access their favorite pieces of entertainment, as well as turnaround its fabled Paramount movie studio. In a statement, Bakish said Viacom had taken “meaningful actions over the past 18 months to de-lever our balance sheet” which “have resulted in a stronger credit profile to help support Viacom’s return to long-term sustainable growth. We remain focused on building this momentum with an even stronger September quarter as we continue to position Viacom for the future.”

Viacom cited evidence of improving terrain. The company said its subscriber declines had begun to moderate, driven by a full return of its cable networks to the lineup offered by Charter Communications. The company also said it had licensed technology it uses to collect data that helps advertisers target specific audience niches to 21st Century Fox, creating a new stream of revenue.

During a conference call with investors, executives predicted a 1% increase in revenue from cable and satellite affiliates in the fiscal fourth quarter and continued to back a turnaround in ad revenue by 2019. Shares of Viacom Class B shares, the more widely traded of its stock, rose 5.73% in earlier trading on slightly higher than average volume.

The company’s controlling shareholder, National Amusements Inc., has explored the idea of combining Viacom with its other big holding, CBS Corp.

Revenue in the company’s fiscal third quarter fell 3.7% to $3.24 billion, compared with $3.36 billion in the year-earlier period. Viacom cited decreases in ad revenue in both the U.S. and abroad and lower revenue from distributors of its programming in overseas markets, as well as tough comparisons in overseas markets with the year-earlier quarter,which featured the release of the latest in the company’s “Transformers” movie franchise.

Viacom said revenue at its biggest operation, its cable networks, fell 2% to $2.50 billion, owing to a 4% decrease in worldwide advertising revenue as well as a 3% decrease in worldwide affiliate revenue.

Revenue from its filmed-entertainment operations decreased 9% to $772 million, largely due to a 33% decline in international revenue that took place due to comparisons with the year-earlier period, which featured the releases of “Transformers: The Last Knight” and “Ghost in the Shell.”

Viacom cited improving performance at its MTV and BET networks, as well as reaction to the current quarter’s release of the latest in its “Mission: Impossible” franchise as good signals of improving future performance.