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Must-know: Chilton Investment Company's 1Q14 positions

Part 3
Must-know: Chilton Investment Company's 1Q14 positions (Part 3 of 7)

Why Chilton adds new position in CBS

Chilton and CBS

Chilton Investment added new positions in Canadian Pacific Railway (CP), CBS Corp. (CBS), and Wyndham Worldwide Corp. (WYN). It sold positions in  CF Industries Holdings (CF), Norfolk Southern Corp. (NSC), and Tenet Healthcare (THC).

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Chilton opened a new position in CBS Corp (CBS) which accounts for 1.18% of the firm’s 1Q14 portfolio.

CBS is a mass media company that creates and distributes industry-leading content across a variety of platforms to audiences around the world. It operates businesses that span the media and entertainment industries, including the CBS Television Network, cable program services, television content production and distribution, motion pictures, consumer publishing, television and radio stations, interactive media, and outdoor advertising.

CBS completes spin-off of CBS Outdoor Americas

CBS spun-off its Outdoor Americas billboard business at the end of March via an initial public offering (or IPO). CBS Outdoor Americas sold 23 million shares, or 19% of its stock, for $28 per share in the IPO, and raised $615 million. CBS said it intends to dispose of its remaining shares in CBS Outdoor through a tax-free split-off in 2014. CBS also received a favorable private letter ruling from the Internal Revenue Service (or IRS) over the conversion of CBS Outdoor to a real estate investment trust (REIT). Following the split-off, CBS Outdoor intends to elect to be taxed as a REIT. Management said, “The separation of this business will bring us that much closer to achieving our goal of becoming a pure content company and, at current market prices, puts us on track to return about $6 billion of value to shareholders in 2014.”

Reports lower first quarter revenue

For 1Q14, CBS reported a revenue decline of around 5% to $3.9 billion, mainly due to the absence of ad revenue from the Super Bowl broadcast and certain NCAA men’s basketball tournament games. Revenue in the earlier 1Q13 included more than $280 million from CBS Television Network’s broadcast of Super Bowl XLVII. Content licensing and distribution revenues grew 6%, driven by higher international licensing of television programming. Affiliate and subscription fee revenues increased 9%, led by higher cable affiliate fees, retransmission revenues, and fees from television stations affiliated with CBS Television Network.

Net income was $468 million or $0.78 per diluted share, compared to $463 million or $0.73 per diluted share for the same period the previous year. The increase reflected the growth in operating income and lower-weighted average shares outstanding due to the company’s ongoing share repurchases. These increases were partially offset by $11 million higher interest expense, mainly resulting from CBS Outdoor’s $1.6 billion of long-term borrowings in January, 2014.

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CBS to grow its non-advertising revenue streams

The company is expecting to grow its non-advertising revenue streams such as content licensing and exclusive subscription video on demand (or SVOD) deals with Amazon, Hulu Plus, and Netflix. In January, Amazon’s Prime Instant Video service announced it will be the exclusive premium subscription home for a CBS summer series Extant, produced by Steven Spielberg and starring Halle Berry. The management added that, “Amazon, Netflix, Hulu Plus, Streampix, WGN, ION, the list goes on and on, and it continues to expand across new platforms every single day. All of these deals are a direct result of the increasing appetite for our content.”

Shares surged after the 4Q13 results were announced in January. CBS reported a higher profit and noted that “streaming, domestic and international syndication, retransmission consent and reverse compensation, all played a huge role in our success in 2013.” The company said on its earnings call that annual retransmission payments and reverse compensation fees is forecast to reach $2 billion in 2020, above the earlier forecast of $1 billion a year in 2017.

CBS expects to benefit from continued growth in revenues in 2014 from MVPDs (multichannel video programming distributors) and television stations affiliated with the CBS Television Network, as well as incremental political advertising sales associated with mid-term elections. It said that advertising revenue comparisons in 2Q14 will be negatively impacted by the broadcast of two fewer NCAA Tournament games on the CBS Television Network compared to 2Q13.

CBS drives shareholder value with accelerated share repurchase

In February, CBS announced plans to initiate an accelerated share repurchase of $1.5 billion of its Class B common stock during the 1Q14. In addition, the company said it plans to step up the pace of its open market share repurchases. In 1Q14, CBS said it spent $2 billion to repurchase 31.4 million shares of its Class B shares. As of March 31, 2014, the company had $3.43 billion of authorization remaining on its share repurchase program. Chief executive officer (or CEO) Leslie Moonves said, “Returning value to shareholders is a top priority at CBS. And these actions underscore the great confidence we have in our future as we continue to evolve into a Company that is more reliant on fast-growing, non-advertising revenue streams.” The board also approved a quarterly dividend of $0.12 per share.

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