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With "The Walking Dead," AMC Networks Inc. Consumes Estimates, Preys on Fear

By Tim Beyers – May 4, 2015 at 3:38PM

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Balanced growth bodes well for the core business as investors wait for "Fear The Walking Dead" to pay off internationally.

Andrew Lincoln as Rick Grimes in the season 5 finale of The Walking Dead. Image credit: Gene Page/AMC.

Shares of AMC Networks (AMCX -3.15%) rose Monday morning and were down slightly as of 3:30 p.m. after the company posted first-quarter revenue and earnings that consumed estimates. Here's a closer look at the final totals versus Wall Street's projections:

AMCXRevenueYOY GrowthEPSYOY Growth
Consensus estimate  $654.02 million  24.7%  $1.44  45.5%
Q1 actuals  $668.68 million  27.5%  $1.66  67.7%
DIFFERENCE  $14.66 million  2.8%  $0.22  22.2%

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

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

AMC Networks is off to a strong start in 2015, with returns on our content investments generating significant growth in our revenues, AOCF [adjusted operating cash flow] and operating income. Viewers continue to embrace our original programming, including AMC's The Walking Dead and our new original series Better Call Saul, which was the most-watched new series on cable in key advertiser demos, this broadcast season. Our international business is developing well, with our portfolio of global channels and strong local brands benefiting from growing demand from distributors. AMC Networks continues to operate from a position of strength, with high quality programming, clearly defined brands and strong audience support that drives financial performance and our ability to create value for shareholders.

What went right: Distribution revenue (up 25.6%) grew faster than ad revenue (25.3%) in the key National Networks segment that produces and licenses programming for distribution across AMC's various networks: AMC, IFC, WeTV, Sundance TV, and AMC International. Higher affiliate fees from cable and satellite operators helped contribute to growth in distribution revenue. A recent multi-year exclusive tie-up with Hulu could add even more in future quarters while giving AMC the ammo needed to demand premiums from new partners. In the meantime, AMC is doing well turning top-line growth into cash to fund new productions and for debt service. Adjusted cash from operations (AOCF) ballooned 55.1% year-over-year to $259.2 million.

What went wrong: AMC is still figuring out how to turn acquired International operations into a meaningful catalyst for the business. Revenue from the segment surged 38.9% year-over-year and AOCF more than doubled over the same period, but at $5.7 million AMC gets just 2.2% of its cash flow from overseas operations. This summer's Fear The Walking Dead spinoff series could change the equation when it becomes the first major in-house produced series to also be distributed by AMC International.

What's next: AMC Networks declined to include second-quarter guidance in its press release. Analysts tracked by S&P Capital IQ have the company generating $609.58 million in revenue and $1.06 a share in adjusted profit, versus $522.09 million and $0.86 a share in last year's Q2. Longer term, analysts have AMC Networks growing earnings by an average of 13.05% annually during the next three to five years.

And in terms of the overall business? Investors should keep a close eye on international operations. Third-quarter results could include meaningful contributions from Fear The Walking Dead in broadcast territories that already welcome the parent series. Right now, that includes parts of Africa, Asia, Australia, Europe, and Latin America.

Tim Beyers feels like the walking dead when he hasn't yet had coffee. He's also a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission and owned shares of Apple at the time of publication. Check out Tim's web home and portfolio holdings or connect with him on Google+Tumblr, or Twitter, where he goes by @milehighfool.

The Motley Fool recommends AMC Networks and Apple. The Motley Fool owns shares of AMC Networks and Apple. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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