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CBS Says Q2 Profit Rises, but Keeps Mum on Moonves Questions

CBS Corp. turned in record-high revenue and profits for the second quarter of 2018, but declined to address continuing uncertainty over the fate of its CEO, Leslie Moonves.

The company reported revenue of $3.47 billion, up 6% year-over-year, and net earnings of $400 million (an increase of 1%), or adjusted earnings per diluted share of $1.12. Wall Street analysts on average expected the company to post EPS of $1.11 on revenue of $3.46 billion.

Moonves faces an external investigation by two law firms hired by CBS’s board regarding sexual-harassment allegations against him by six women detailed in a July 27 report by the New Yorker. The board of directors, after deliberating the matter Monday, took no immediate disciplinary action against the exec.

In CBS’s Q2 earnings release, Moonves did not address the allegations. On the earnings call, a CBS investor-relations exec informed analysts that because of pending litigation and “on advice of counsel,” the scope of questions “will be limited” to the second-quarter results — indicating Moonves would not take questions about the harassment accusations or the ongoing legal spat with Shari Redstone’s National Amusements for control of CBS. None of the Wall Street analysts who were called on ventured to ask about either topic.

In after-hours trading, CBS shares were down as much as 1.4%, perhaps reflecting investor concern over the lack of clarity about Moonves’ status moving forward.

During the quarter, CBS saw “healthy gains in both traditional distribution and new digital platforms,” Moonves said in the prepared remarks.

In particular, the company’s direct-to-consumer platforms — CBS All Access and Showtime’s streaming service — are on track to hit 8 million subscribers combined in 2019 (whereas CBS previously projected hitting that mark by 2020). “We now predict that CBS All Access and Showtime OTT will have 16 million domestic subscribers by 2022,” Moonves said in the earnings release.

During a call with investors, Moonves and CBS COO Joseph Ianiello focused on new opportunities in advertising and streaming-video, highlighting prospects for new ad revenue from sports betting and emphasizing a widening suite of live-streaming content products. A new broadband entertainment-news service based on Entertainment Tonight is slated to launch in the fall.

CBS’s advertising revenue for Q2 was $1.33 billion, up 2.2% year-over-year. According to Moonves, the company “recently concluded another terrific upfront with solid increases in pricing and volume, including dramatic growth in digital volume.” In the second half of 2018, CBS expects to see ad-sales gains in its local TV stations business with the midterm elections in the fall.

Content-licensing and distribution revenue rose 3.8%, to $1.096 billion, in the quarter. Moonves, in prepared remarks, called out recent deals CBS reached with Apple, Netflix and TBS.

Overall, CBS’s affiliate fees and subscriber revenue was $989 million, up 17%. In the entertainment group, affiliate and subscription fees increased by 38%, driven by higher station affiliation fees and revenue from digital initiatives, including CBS All Access and internet-delivered TV services. Moonves noted that under a new deal with the NFL, CBS All Access subs starting next season will be able to stream the league’s games on mobile devices in addition to connected-TV platforms and the web.

CBS’s operating income for Q2 fell 4%, to $659 million. Excluding $35 million in one-time charges, adjusted operating income was up 1% to $694 million. CBS took restructuring charges of $25 million during Q2 in its entertainment, publishing, local media and corporate segments “primarily for the reorganization of certain business operations.” It recorded expenses of $10 million primarily related to the evaluation of a potential merger with Viacom and the legal proceedings involving the company and National Amusements.

Also during the quarter, CBS repurchased 3.8 million of its shares for $200 million.

— Brian Steinberg contributed to this report.

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