A dinobot from Transformers: Age of Extinction. Credit: Paramount Pictures.
Shares of Viacom, Inc. (VIAB +0.00%) stock entered the week down about 19% year-to-date. Will the slide continue, or are better days ahead? A lot depends on how well the business performs. Here's a closer look at what analysts expect to see when the film studio and cable channel operator reports fiscal fourth-quarter earnings on Thursday morning:
| Q4 Estimates | Revenue | YoY Growth | EPS | YoY Growth |
|
Low estimate |
$3,636 million |
(0.4%) |
$1.63 |
5.2% |
|
High estimate |
$4,204 million |
15.1% |
$1.78 |
14.8% |
|
S&P CAPITAL IQ CONSENSUS |
$3,888.49 mil. |
6.5% |
$1.68 |
8.4% |
Source: S&P Capital IQ.
Viacom's has done reasonably well surpassing Wall Street's targets in recent quarters, though by a thinning margin. A Q4 miss wouldn't be out of the ordinary:
| Earnings History | Q4 2013 | Q1 2014 | Q2 2014 | Q3 2014 |
|
Consensus |
$1.44 |
$1.16 |
$1.04 |
$1.43 |
|
Actual |
$1.55 |
$1.20 |
$1.08 |
$1.42 |
|
DIFFERENCE |
$0.11 |
$0.04 |
$0.04 |
($0.01) |
Source: S&P Capital IQ.
Looking at the overall business, I'm watching for progress in each of these four areas:
1. Box office breakthroughs. Last quarter, Viacom didn't get the full benefit of the success of Transformers: Age of Extinction. Expect it to be a catalyst this time around. According to data compiled by Box Office Mojo, Optimus Prime and his giant-robot pals earned $1.087 billion at the worldwide box office -- lifting the franchise average to just over $939 million over four films. Teenage Mutant Ninja Turtles added $438.6 million in worldwide grosses from a $125 million production budget. Investors shouldn't be surprised to see outsized growth from Filmed Entertainment in Q4.
2. Good news in the scatter market. Television ad revenue inched up just 1% year-over-year in fiscal Q3 as buyers chose to spend less upfront and wait for "scatter" sales, whereby advertisers bid for unclaimed 30-second spots before shows air. Every major broadcast network was affected. Yet CEO Philippe Dauman doesn't view it as a systemic problem. Rather, in September, he told the crowd at Goldman Sachs' annual Communacopia Conference that he was "optimistic" about Viacom's advertising sales heading into the new broadcast season. Above-average gains in the scatter market could be in order.
3. An update on franchise bets. In July, Viacom extended a deal that gives the studio first rights to develop and distribute director Michael Bay's newest projects. Whether that includes a new Transformers movie or some level involvement in Teenage Mutant Ninja Turtles 2, scheduled for June 2016, is unknown at this point. (Though Bay's production company -- Platinum Dunes -- will be producing the Turtles sequel.) Look for Dauman to give an update on Viacom's next round of franchise bets during the earnings call.
4. Details on the effectiveness of share repurchases. As of August, Viacom still had plans for $7.15 billion in share repurchases. And that's after accounting for $850 million in buybacks at an average price of $85 a share last quarter, not exactly great news when the stock trades for just about $70 a share as of this writing. Investors are no doubt rooting for better returns when Dauman and his team report fourth-quarter buyback activity on the earnings call.
Viacom reports fiscal Q4 results Thursday, November 13 before the market opens; check back here then for our take on the report. And in the meantime, leave a comment to let us know what you're expecting, and what you think of Viacom stock at current prices.
