"The Walking Dead" Animates AMC Networks Inc. Earnings

A big boost in ad revenue leads to surging cash flow, and more confidence in the long-term value of the business.

Tim Beyers
Tim Beyers
Feb 26, 2015 at 5:14PM
Consumer Goods

Andrew Lincoln as Rick Grimes in season 5 of AMC's The Walking Dead. Credit: Frank Ockenfels 3/AMC.

Shares of AMC Networks (NASDAQ:AMCX) stock rose about 5% Thursday as investors cheered better-than-expected fourth-quarter results from the upstart TV and movie studio. Here's a closer look at the final totals versus Wall Street's projections:

AMCXRevenueYOY GrowthEPSYOY Growth
Consensus estimate  $603.14 million  38.6%  $1.01  90.6%
Q4 actuals  $609.44 million  40%  $1.15  116.9%
DIFFERENCE  $6.3 million  1.4%  $0.14  26.3%

Sources: S&P Capital IQ and AMC Networks press release.

For the full year, AMC reported $2,175.64 million in revenue and $3.77 a share in non-GAAP profit. Analysts tracked by S&P Capital IQ were calling for $2,163.55 million and $3.62 a share, respectively.

Commenting on the results, CEO Josh Sapan said in a press release:

The fourth quarter and full-year 2014 was strong for AMC Networks with double digit percentage increases in our revenue and cash flow. The strong performance of our original programming with record ratings at our national networks has led to continued increases in affiliate fees and advertising revenues.

What went right: Advertising revenue surged 24.3% in the fourth quarter on "strong demand for original programming," which no doubt includes The Walking Dead. Season five of the zombie drama kicked off at the beginning of the quarter with another record-breaking premiere. A joint venture giving AMC operational control of BBC AMERICA also aided advertising results and drove higher affiliate fees, leading to a 15.3% increase in distribution revenue. Adjusted cash flow from operations, or AOCF, also improved along with revenue, rising 96.9% year over year in Q4.

What went wrong: International operations are improving but not yet profitable. Operating losses in the unit rose from $16.9 million in last year's fourth quarter to $18.8 million in the current period thanks to $7.7 million in restructuring charges that didn't impact cash flow. In fact, AOCF for the division improved to $3.06 million, up from a $13.1 million loss in last year's Q4. Expect further gains as AMC distributes more of its original programming to abroad territories opened with the Chellomedia deal.

What's next: AMC Networks didn't provide first-quarter guidance in its press release. Analysts tracked by S&P Capital IQ have the company generating $685.6 million in revenue and $1.45 a share in profit versus $524.55 million and $0.99 a share in last year's first quarter.

Longer term, analysts have AMC generating 16.6% average annual earnings growth over the next three to five years.