Viacom (VIAB) Down 3.2% Since Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Viacom Inc. VIAB. Shares have lost about 3.2% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Viacom's Q2 Earnings Beat

Viacom performed impressively in the second quarter of fiscal 2017 (ended Mar 31, 2017) reporting better-than-expected earnings per share and revenues. The company’s earnings (on an adjusted basis) of $0.79 per share handsomely beat the Zacks Consensus Estimate of $0.59. Moreover, the bottom line expanded 3.95% on a year-over-year basis. Results were aided by higher revenues.

Total revenue in the quarter was $3,256 million, up 8.5% year over year. The top line also surpassed the Zacks Consensus Estimate of $3,056.1 million and was boosted by strong growth in its Filmed Entertainment segment.

Quarterly adjusted operating income grew 4% year over year to $612 million. At the end of the second quarter of fiscal 2017, Viacom had $671 million of cash & cash equivalents, and $12,171 million of outstanding debt compared with $379 million and $11,896 million, respectively, at the end of fiscal 2016.

Segmental Performance

Media Networks

Quarterly revenues for the company’s media networks segment were $2.39 billion up 1% year over year. While domestic revenues declined 2% to $1.92 billion, international revenues climbed 11% to $478 million. Foreign currency movements adversely impacted segmental results to the tune of 1%.

The segment generates revenues principally from three sources: (i) affiliate revenues (ii) advertising revenues; and (iii) ancillary revenues. Affiliate revenues climbed 2% to $1.16 billion owing to increase in revenues both on the domestic and international fronts. However, advertising revenues decreased 1% to $1.11 billion, mainly due to below-par showing on the domestic front.

Moreover, the quarter witnessed ancillary revenues to be flat at $129 million. Domestic ancillary revenues were $70 million, down 8%. Such revenues increased 11% to $59 million on the international front.

Additionally, quarterly operating income (on an adjusted basis) declined significantly to $747 million.

Filmed Entertainment

Quarterly revenues surged 37% year over year to $895 million. Also, this segment saw a massive increase (149%) in ancillary revenues. While home entertainment revenues climbed 29%, license revenues grew 45% and revenues on the theatrical front improved 10%. But the segment reported an operating loss (on an adjusted basis) in the quarter of $66 million, reflecting an improvement from the year-ago loss of $136 million. Higher revenues led to the improvement

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision lower for the current quarter. While looking back an additional 30 days, we can see even more downside.

Viacom Inc. Price and Consensus

Viacom Inc. Price and Consensus | Viacom Inc. Quote

VGM Scores

At this time, Viacom's stock has an average Growth Score of 'C', though it is lagging a lot on the momentum front with an 'F'. The stock was allocated a grade of 'A' on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B'. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for value investors than growth investors.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.

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