CBS Profit Up 32%; Every Division Reports Double-Digit Growth

The Eye saw across-the-board, double-digit profit increases during the last three months of 2010

Last Updated: February 16, 2011 @ 3:14 PM

CBS reported across-the-board increases and a 32 percent surge in profit in its fourth quarter on Wednesday, as a double-digit increase in advertising revenue — including the bump from political ads — boosted earnings.

Overall, CBS reported fourth quarter revenue of $3.90 billion, up 11 percent over the same period in 2009. That included a 21 percent revenue jump for its local broadcast networks, 11 percent increase for the entertainment segment and 6 percent uptick at its cable arm.

The revenue gains were driven by a 12 percent increase in advertising during the quarter — a sign that the advertising recovering that began to take hold last year is indeed sticking, especially for those Madison Avenue agencies with big budgets to spend on television.

CBS' licensing and distribution revenues were up 21 percent, driven by a syndication sale of "CSI: Crime Scene Investigation."

CBS' operating income ($770.1 million) was up 32 percent for the fourth quarter, as every single part of the company's business delivered double-digit profit growth.

"CBS' exceptional fourth quarter results capped an extraordinary year," a jubilant CBS Corp. chairman Sumner Redstone said during a conference call with investors.  "Our strategy of producing and distributing the best content is proving to be highly successful in a multi-platform world. Our performance gets better and better and better."

Chief executive Les Moonves (pictured) added, "We expect these results to continue for a long, long time."

At CBS Television Networks, revenues ($2.02 billion) drove a fourth quarter profit of $249 million, up 31 percent. CBS Interactive, which is also included in this segment, saw advertising revenues grow 19 percent.

Full-year 2010 revenues ($7.39 billion) were up 6 percent on advertising gains in primetime and in CBS sports coverage — including the telecast of Super Bowl XLIV and the 2010 NCAA Men's Basketball Championship. (The company told investors that first quarter 2011 revenues would be down without a Super Bowl — and having to share March Madness with Turner — but that costs would also be down, and profits would "be up considerably.")

Looking ahead to the next primetime television season, Moonves said, "We could almost play a pat hand."

"Any new show that does make it onto our schedule is going to have to be pretty extraordinary," he said, which means lower development costs and better profit margins.

Moonves wouldn't make a prediction on the May Upfronts, but said demand for ad time on CBS is currently exceeding inventory. "Our sales department calls us every day to yank promos and put ads in there," he said.

Revenues for CBS' cable networks — which include Showtime and the CBS College Sports Network — increased 6 percent during the quarter. Profits rose 10 percent.

The company's book publishing business — Simon & Schuster — increased 5 percent, with profits up 32 percent, with Glenn Beck's bestselling "Broke" goosing sales.

The results beat Wall Street's already high expectations, as CBS stock rose 2 percent on Wednesday in anticipation of the earnings. For some perspective, on February 26, 2010, the price of CBS' common stock was trading at $12.99 per share. It closed Wednesday $22.10.

Here's the full earnings release:

NEW YORK, Feb. 16, 2011 /PRNewswire/ — CBS Corporation (NYSE:CBS.A – News) today reported results for the fourth quarter and full year ended December 31, 2010.

"CBS's exceptional fourth quarter results capped an extraordinary year for the Company," said Sumner Redstone, Executive Chairman, CBS Corporation.  "Our strategy of producing and distributing the best content is proving to be highly successful in a multi-platform world.  Given our very talented management team, and our pipeline and library of industry-leading content that just keeps getting better, CBS is poised for continued success well into the future."

"CBS's momentum accelerated throughout 2010, culminating in our best results of the year in the fourth quarter," said Leslie Moonves, President and Chief Executive Officer, CBS Corporation. "Every one of our operating groups achieved solid quarterly revenue growth, and double-digit OIBDA growth. On the television network, in domestic and international syndication, on cable and on new and emerging platforms, our content continues to outperform, and we're increasingly being paid a premium for it as a result. The ongoing resurgence of our local businesses also had a very positive effect on the quarter. We see these positive trends – throughout our businesses — continuing into the first quarter of 2011, with robust network scatter and very strong local ad pacing. At the same time, we have maintained our strict discipline on controlling costs and taken significant steps to further strengthen our balance sheet and enhance shareholder value, including our $1.5 billion share buyback program, which we began implementing last month. Between the strength of our content, the way we've positioned our Company for future growth and the ongoing improvement in the economic environment, we expect great things this year and beyond."

Fourth Quarter 2010 Results

Revenues of $3.90 billion for the fourth quarter of 2010 were the highest of the year and up 11% from $3.50 billion for the same quarter last year. Every segment of the Company recorded revenue growth from a year ago, led by an increase of 21% at Local Broadcasting, 11% at Entertainment and 6% each at Outdoor and Cable Networks. Total advertising sales were up 12%, driven by growth in local and national advertising, including the benefit from higher political revenues. Content licensing and distribution revenues were up 21%, reflecting the second-cycle syndication sale of CSI: Crime Scene Investigation, as well as higher international syndication sales.

Adjusted operating income before depreciation and amortization ("OIBDA") of $770.1 million for the fourth quarter of 2010 was also the highest of the year and was up 32% versus $582.4 million for the same prior-year period. Every one of the Company's segments delivered double-digit adjusted OIBDA growth as well as margin expansion during the quarter. This growth was driven by the increase in revenues, partially offset by increased investment in content in the Entertainment segment. The adjusted OIBDA margin of 20% for the fourth quarter of 2010 increased three percentage points from the same prior-year period. Adjusted operating income for the fourth quarter increased 45% to $631.3 million from $435.0 million for the same quarter last year.

Adjusted net earnings of $319.4 million for the fourth quarter of 2010 increased 78% from $179.2 million for the same quarter last year, and adjusted diluted earnings per share of $.46 increased 77% from $.26.

Adjusted results for the fourth quarter of 2010 exclude restructuring charges of $14.6 million and a pre-tax loss on early extinguishment of debt of $43.5 million. Adjusted results for the fourth quarter of 2009 exclude pre-tax non-cash impairment charges totaling $186.0 million, restructuring charges of $13.2 million and a net benefit from discrete tax items of $1.3 million. These items reduced diluted earnings per share for the fourth quarter of 2010 and 2009 by $.05 and $.17, respectively. Reconciliations of all non-GAAP measures to reported results are included at the end of this earnings release.

Reported OIBDA for the fourth quarter of 2010 increased 93% to $755.5 million from $390.9 million for the same quarter last year, and reported operating income increased 153% to $616.7 million from $243.5 million. Reported net earnings were $283.0 million, or $.41 per diluted share, for the fourth quarter of 2010, up from $58.8 million, or $.09 per diluted share, for the same time last year.

Free cash flow for the fourth quarter of 2010 was $39.9 million versus $295.4 million for the fourth quarter of 2009. The Company made fourth quarter discretionary contributions of $167.0 million and $20.0 million in 2010 and 2009, respectively, to pre-fund its qualified pension plans.

Full Year 2010 Results

Full year 2010 revenues of $14.06 billion rose 8% from the prior year, led by increases of 18% at Local Broadcasting, 6% at Entertainment, 9% at Cable Networks and 6% at Outdoor. Total advertising sales for 2010 were up 12%, which included the 2010 telecast of Super Bowl XLIV on the CBS Television Network and growth in local and national advertising. Affiliate and subscription fees were up 9%. Content licensing and distribution revenues declined 2% reflecting lower domestic syndication sales from the absence of the first-cycle sales of five major titles in 2009, partially offset by higher international syndication sales and the addition of theatrical revenues in 2010.

Adjusted OIBDA for 2010 was $2.37 billion, up 32% from $1.80 billion for 2009, driven by the aforementioned growth in advertising revenues and affiliate and subscription fees, partially offset by lower domestic syndication sales, increased investment in content and higher sports programming costs, largely attributable to Super Bowl XLIV. The adjusted OIBDA margin of 17% for 2010 increased three percentage points from 2009, driven by significant improvement in Local Broadcasting, Outdoor and Cable Networks. Adjusted operating income for 2010 increased 49% to $1.81 billion from $1.22 billion for 2009.

Adjusted net earnings of $772.7 million for 2010 increased 107% from $374.0 million for 2009, and adjusted diluted earnings per share were $1.11, up from $.55.

Adjusted results for 2010 exclude a favorable settlement relating to previously disposed businesses of $90.2 million, restructuring charges of $80.6 million, a pre-tax loss on early extinguishment of debt of $81.4 million, a pre-tax gain on a disposition of $7.6 million and a net provision from discrete tax items of $7.7 million. Adjusted results for 2009 exclude pre-tax non-cash impairment charges totaling $217.7 million, a favorable settlement relating to a previously disposed business of $28.0 million, restructuring charges of $22.8 million, a pre-tax loss on early extinguishment of debt of $29.8 million and a net benefit from discrete tax items of $4.4 million. These items reduced diluted earnings per share for 2010 by $.07 and for 2009 by $.22. Reconciliations of all non-GAAP measures to reported results are included at the end of this earnings release.

Reported OIBDA for 2010 increased 49% to $2.38 billion from $1.59 billion for 2009 and reported operating income increased 80% to $1.82 billion from $1.01 billion.  Reported net earnings of $724.2 million for 2010 increased $497.7 million from net earnings of $226.5 million for 2009, and reported net earnings per diluted share were $1.04, up from $.33.

Free cash flow for 2010 increased 75% to $1.45 billion from $827.8 million for 2009, largely as a result of higher revenues from advertising and affiliate and subscription fees. The increase was partially offset by higher discretionary contributions in 2010 to pre-fund the Company's qualified pension plans as well as higher cash taxes.

Balance Sheet and Liquidity

At December 31, 2010, the Company's cash balance was $480.0 million, a decrease of $236.7 million from $716.7 million at December 31, 2009. During the fourth quarter, the Company used cash on hand and the proceeds from the fourth quarter issuance of $600.0 million of senior notes to pay down $1.13 billion of its outstanding debt and to make a discretionary contribution of $167.0 million to pre-fund its qualified pension plans. For the full year 2010, the Company reduced its total debt outstanding by $1.40 billion, including a $400.0 million reduction to the accounts receivable securitization program. The Company had $6.00 billion of debt outstanding at December 31, 2010.

Consolidated and Segment Results

Entertainment (CBS Television Network, CBS Television Studios, CBS Studios International, CBS Television Distribution, CBS Films and CBS Interactive)

Fourth Quarter

Entertainment revenues of $2.02 billion for the fourth quarter of 2010 increased 11% from the same prior-year period reflecting 29% growth in television license fees, driven by the second-cycle syndication sale of CSI: Crime Scene Investigation, 8% higher Network advertising revenues, with growth in Primetime and Sports, and 18% growth in CBS Interactive display advertising.

Entertainment adjusted OIBDA for the fourth quarter of 2010 increased 31% to $249.0 million from $190.8 million, with growth in revenues partially offset by expenses related to the aforementioned second-cycle syndication sale of CSI: Crime Scene Investigation and increased investment in content. Adjusted OIBDA excludes restructuring charges of $12.0 million for the fourth quarter of 2010.

Full Year

Entertainment revenues of $7.39 billion for 2010 increased 6% from $6.98 billion for 2009 primarily due to higher Network advertising sales, with growth in Primetime and Sports, including the telecast of Super Bowl XLIV and the 2010 NCAA Division I Men's Basketball Championship on the CBS Television Network. Revenue growth was also driven by 19% higher CBS Interactive display advertising, higher international syndication sales and revenues from theatrical releases of films, partially offset by lower domestic syndication sales, as revenues from 2010 syndication sales, including the second-cycle sale of CSI: Crime Scene Investigation, were more than offset by the first-cycle syndication sales of five major titles in 2009.  

Entertainment adjusted OIBDA for 2010 increased 2% to $894.3 million from $875.3 million for 2009. Growth in advertising sales was partially offset by higher sports programming costs, lower profits from syndication sales and increased investment in content. Adjusted OIBDA excludes restructuring charges of $22.8 million for 2010 and a $.6 million reversal of restructuring charges for 2009.

Cable Networks (Showtime Networks, CBS College Sports Network and Smithsonian Networks)

Fourth Quarter

Cable Networks revenues for the fourth quarter of 2010 increased 6% to $368.3 million from $347.1 million for the same prior-year period driven by rate increases and growth in subscriptions at both Showtime Networks and CBS College Sports Network. Showtime Networks (which includes Showtime, The Movie Channel and Flix) subscriptions totaled 67.1 million as of December 31, 2010, up by 5.8 million from the same time last year, due largely to higher direct broadcast satellite and telephone company subscriptions. CBS College Sports Network subscriptions of 39.1 million were up by 4.3 million from one year ago, resulting from increased carriage across all platforms, as well as the launch of CBS College Sports Network on additional multi-system operators.  

Cable Networks OIBDA for the fourth quarter of 2010 increased 10% to $168.6 million from adjusted OIBDA of $152.9 million for the same prior-year period, with revenue growth partially offset by the timing of programming costs. Adjusted OIBDA excludes restructuring charges of $.1 million for the fourth quarter of 2009.

Full Year

Cable Networks revenues for 2010 increased 9% to $1.48 billion from $1.35 billion for the prior year due to rate increases and growth in subscriptions at Showtime Networks and CBS College Sports Network.  

Cable Networks adjusted OIBDA of $569.3 million increased 23% in 2010 from $461.1 million for the prior year, driven by the revenue increase, partially offset by higher marketing and advertising costs primarily to support the launch of new original series on Showtime Networks. Adjusted OIBDA excludes restructuring charges of $3.1 million for 2010 and $.1 million for 2009.

Publishing (Simon & Schuster)

Fourth Quarter

Publishing revenues for the fourth quarter of 2010 increased 5% to $231.7 million from $220.0 million for the same prior-year period reflecting growth in sales of digital content, which increased 117%. Best-selling titles in the fourth quarter included Broke by Glenn Beck and Full Dark, No Stars by Stephen King.

Publishing adjusted OIBDA for the fourth quarter of 2010 increased 32% to $20.1 million from $15.2 million, reflecting higher revenues as well as lower royalty expenses and lower production costs from a change in the mix of titles, partially offset by an increased provision for doubtful accounts. Adjusted OIBDA excludes restructuring charges of $1.9 million for the fourth quarter of 2010 and $1.6 million for the same prior-year period.

Full Year

Publishing revenues for 2010 decreased slightly to $790.8 million from $793.5 million for the prior year as strong digital content sales, which more than doubled over the prior year, were more than offset by lower book sales in the soft retail market.  

Publishing adjusted OIBDA for 2010 increased 33% to $71.8 million from $54.0 million for the prior year, reflecting the impact of cost reduction measures and lower production expenses from a change in the mix of revenues, partially offset by an increased provision for doubtful accounts. Adjusted OIBDA excludes restructuring charges of $3.7 million for 2010 and $3.8 million for 2009.

Local Broadcasting (CBS Television Stations and CBS Radio)

Fourth Quarter

Local Broadcasting revenues for the fourth quarter of 2010 increased 21% to $821.5 million from $680.0 million for the same prior-year period, primarily driven by growth in advertising sales. CBS Television Stations advertising revenues increased 28% reflecting the improved advertising marketplace across many key categories, including automotive and financial services, and higher political advertising sales. CBS Radio advertising revenues increased 14%, the highest advertising growth of the year.    

Local Broadcasting OIBDA for the fourth quarter of 2010 increased 43% to $321.8 million from adjusted OIBDA of $225.1 million for the same prior-year period, primarily due to the revenue growth, partially offset by a 2009 gain from the sale of broadcasting spectrum. The OIBDA margin of 39% for the fourth quarter of 2010 increased by six percentage points from last year's fourth quarter adjusted OIBDA margin. Adjusted OIBDA for the fourth quarter of 2009 excludes impairment charges of $178.3 million to reduce the carrying value of FCC broadcast licenses in certain radio markets.

Full Year

Local Broadcasting revenues for 2010 increased 18% to $2.78 billion from $2.36 billion for the prior year. CBS Television Stations advertising revenues for 2010 increased 28% due to the much improved marketplace, the benefit of the 2010 telecast of Super Bowl XLIV to the Company's owned CBS affiliated stations and higher political advertising sales. CBS Radio advertising revenues for 2010 increased 9% and advertising revenues from the ten largest radio markets increased 12% in the much improved advertising marketplace.

Local Broadcasting adjusted OIBDA for 2010 increased 68% to $864.9 million from $515.2 million for the prior year, reflecting improved OIBDA margins for 2010, the result of the revenue growth, a lower fixed cost structure resulting from expense reduction measures and a $14.0 million charge recorded in the second quarter of 2009 to write-down programming inventory to its net realizable value, partially offset by a 2009 gain from the sale of broadcasting spectrum. Adjusted OIBDA excludes restructuring charges of $25.2 million for 2010 and $2.3 million for 2009. Adjusted OIBDA for 2009 also excludes impairment charges of $210.0 million to reduce the carrying value of goodwill and intangible assets.

Outdoor (CBS Outdoor)

Fourth Quarter

Outdoor revenues for the fourth quarter of 2010 increased 6% to $511.0 million from $483.7 million for the same prior-year period as the outdoor advertising marketplace continued to improve. Revenues for the Americas (comprising North and South America) for the fourth quarter of 2010 increased 13% in constant dollars from the same prior-year period, driven by growth in the U.S. billboards and displays businesses, including the impact of new transit contracts. Revenues for Europe increased slightly in constant dollar terms as growth in the United Kingdom, Spain and Italy during the quarter was substantially offset by lower revenues in France.

Outdoor adjusted OIBDA for the fourth quarter of 2010 increased 22% to $100.8 million from $82.7 million for the same prior-year period due to the revenue growth and an overall lower cost structure, partially offset by higher billboard lease and display site costs. Adjusted OIBDA excludes restructuring charges of $.7 million for the fourth quarter of 2010 and $13.9 million for the same prior-year period.

Full Year

Outdoor revenues for 2010 increased 6% to $1.82 billion from $1.72 billion for the prior year principally reflecting the improved advertising marketplace. In constant dollars, Americas revenues increased 8% reflecting growth in the U.S. billboards and displays businesses, including the impact of new transit contracts, and growth in Canada displays. Europe revenues for 2010 increased 3% in constant dollars reflecting growth in the United Kingdom, Holland and Italy, partially offset by a revenue decline in France.

For 2010, Outdoor adjusted OIBDA of $288.6 million increased 55% from $185.9 million for the prior year due to the revenue growth as well as lower billboard lease, maintenance and display site costs resulting from cost-savings initiatives, partially offset by costs for new contracts. Adjusted OIBDA excludes restructuring charges of $25.8 million for 2010 and $17.2 million for 2009.

Corporate

For the three months ended December 31, 2010, corporate expenses before depreciation expense increased $15.8 million to $64.9 million. For the full year 2010, corporate expenses before depreciation expense increased $71.1 million to $218.2 million versus the same prior-year period. For each period the increase primarily reflects the absence of the 2009 favorable impact from the termination of a real estate lease arrangement and higher incentive compensation.  

Residual Costs

Residual costs include pension and postretirement benefits costs for benefit plans retained by the Company for previously divested businesses. For the three months ended December 31, 2010, residual costs decreased $9.6 million to $26.3 million and for the full year 2010 adjusted residual costs decreased $38.6 million to $105.1 million primarily due to the favorable performance of pension plan assets in 2009. Adjusted residual costs exclude settlements of $90.2 million and $28.0 million for the full year 2010 and 2009, respectively, related to the favorable resolutions of certain disputes regarding previously disposed businesses.

[Photo: CBS]