For AMC, "Fear the Walking Dead" Just Became a Lot More Important

AMC's first globally distributed original prepares to debut as AMC reports lagging results in its international division.

Tim Beyers
Tim Beyers
Aug 6, 2015 at 12:54PM
Consumer Goods

AMC has high hopes for Fear the Walking Dead, which debuts on August 23. Source: Frank Ockenfels 3/AMC. 

Shares of AMC Networks (NASDAQ:AMCX) fell over 10% in morning trading as investors jeered the studio's declining international revenue. Here's a closer look at the Q2 totals versus Wall Street's projections:

AMCXRevenueYOY GrowthEPSYOY Growth
Consensus estimate  $592.44 million  13.5%  $0.91  5.8%
Q2 actual  $601.14 million  15.1%  $1.16  34.9%
DIFFERENCE  $8.7 million  1.6%  $0.25  29.1%

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

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

AMC Networks had a strong second quarter, with double digit growth in revenues, [adjusted operating cash flow] and operating income driven by our continued focus on investing in high-quality programming. In addition to maintaining our core content strategy, we have become more of an owner of content; we have closely aligned ourselves with a premier producer of content through our BBC AMERICA joint venture; and we have expanded our global distribution footprint to include 140 countries and territories. This strategic approach has enabled us to diversify our sources of revenue and has set us up well for an increasingly digital future, one in which consumers exercise more choice and control over every minute of television they watch. We believe this strategy will continue to allow us to create value for our shareholders in the near, mid and long term. 

What went right: Distribution revenue soared 29.3% in the second quarter on higher affiliate fees -- including fees for BBC AMERICA programming -- and increases in "digital, licensing, and home video revenues," the company said. The latter is particularly interesting. Why? In April, AMC and Hulu signed a "multi-year" distribution agreement that includes exclusive streaming rights for forthcoming original series, including Fear The Walking Dead. No figures were given at the time, but now, with Q2's results in, it seems the deal was especially lucrative for AMC.

What went wrong: International revenue declined for the first time in nine quarters, falling 9.6% to $113 million. Adjusted cash flow from operations -- a measure that adds back noncash depreciation and amortization, share-based compensation, and restructuring -- and operating income plunged 55.9% and 338.6%, respectively, over the same period.

What's next: AMC Networks didn't include guidance in its press release. Nevertheless, analysts tracked by S&P Capital IQ have the company generating $610.3 million in revenue and $0.91 a share in profit after accounting for stock-based compensation and other noncash items. That compares with $519.55 million and $0.80 a share in last year's Q3.

Longer term, analysts have AMC growing earnings by an average of 12.5% annually over the next three to five years. 

In the meantime, investors should pay close attention to international revenue, AOCF, and operating income next quarter and in Q4. Fear the Walking Dead will have made its global premiere at that point, creating the first opportunity for AMC International to cash in on an original series of its own making.

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