One indication that the economy is buzzing along is that advertisers are willing to spend on television airtime. Based on recent reports of CBS Corporation (NYSE:CBS)’s upfront (advance) fall season ad sales, trends are positive, though not exceptional, in terms of expectations. That highest-rated broadcast TV network is said to have realized pricing gains in the 8% range, versus its expectations of high single-digit to low double-digit increases. This made relatively flat ad sales comparisons with 2012 for the full year, due to ratings declines that affect scatter (spot) rates.
Meantime, the June quarter is near completion. Notably, pricing during the period has been up more than 10% year over year. Still, there are several other factors at work in the media conglomerate’s financial results. Thus, its earnings release in August should be considered prior to making commitments to the shares at this juncture. As always, I view CBS Corporation (NYSE:CBS) as a solid long-term portfolio holding.
Advertising Is Core Revenue Generator
Last year, ad dollars contributed 60% of CBS Corporation (NYSE:CBS)’ total revenues, rendering it more reliant on that source of income than most of its entertainment conglomerate peers. Ad time is a high-margin product that brings in strong cash flows. Indeed, television broadcasters are typically attractive investments when conditions are sound, given their abilities to reinvest cash to the benefit of shareholders in the form of share buybacks and dividends, or for acquisitions that support bottom-line growth.
Another industry where companies typically have strong cash flows that they utilize to the benefit of shareholders is supermarkets. For instance, The Kroger Co. (NYSE:KR)rp. grew its share earnings 16% in fiscal 2012 (ended Feb 2), along with repurchases and a $0.53 a share dividend, while also investing in its owned store count. The Kroger Co. (NYSE:KR) is poised to expand its same-store sales again this year, and the shares remain a worthwhile selection.
On that note, looking ahead for CBS Corporation (NYSE:CBS), income gains from network affiliate fees, along with its Cable Networks unit, ought to drive earnings higher. Within its cable segment, original programming on Showtime should continue to bolster results.
Here are some of the numbers for CBS and The Kroger Co. (NYSE:KR):
| CBS Corp. | Kroger Co. | |
|---|---|---|
| 2012 Sales ($Mill.) | 14,089 | 96,751 |
| 2012 EPS | $2.55 | $2.63 |
| 2012 CF / Share | $3.20 | $5.71 |
New Fall Programs on Tap
While CBS Corporation (NYSE:CBS) will continue to count on proven hit series, including the NCIS franchise, Survivor, and The Big Bang Theory, it is also slated to introduce at least five new shows this fall or mid-season. Two of these are scheduled to air on Thursday, namely The Millers, starring Will Arnett as a divorced reporter and The Crazy Ones, a workplace comedy with Robin Williams and Sarah Michelle Gellar in lead roles.
Over on Showtime, several juicy new series are also on tap. We anticipate that Showtime subscription figures will continue to increase, boosting fee revenues. Although not contributing a sizable proportion of revenues, the cable segment is a key to profit gains.
For comparisons, The Walt Disney Company (NYSE:DIS)’s ABC network is planning to launch seven or eight new programs in its primetime lineup this fall. ABC is trailing in the ratings books, causing The Walt Disney Company (NYSE:DIS)’s broadcast revenue and earnings to decline in the March quarter. The Walt Disney Company (NYSE:DIS), though, does not rely heavily on ABC, and profits are growing nicely behind its cable network, theme park, and even its film business. I recommend DIS shares, too, for long-term price appreciation.
What to Expect
CBS Corporation (NYSE:CBS)’ upfront ad sales are a sign that the broadcast TV market is still potent, despite its ongoing bleeding of share to cable, the Internet and other digital sources. This year’s advertising revenues should be stable. Still, CBS should continue to invest in newer forms of entertainment and capture young audiences. Such assets consist of premium cable, where it is already present, as well as video-on-demand services and online content, assets that are already contributing to profit gains for some of CBS’ fellow media firms.
Damon Churchwell has no position in any stocks mentioned. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of Walt Disney. Damon is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article CBS’ Advertising Sales Remain Healthy originally appeared on Fool.com is written by Damon Churchwell.
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