Why Rising Debt Remains a Concern for CBS



What’s driving CBS’s debt deeper?

CBS (CBS) continues to witness growth in its debt level, which has been primarily driven by increased share buybacks and dividend payments. At the end of 3Q17, it had long-term debt of nearly $9.1 billion, compared with $8.9 billion at the end of 2016.

From the graph above, you can see the continuous rise in CBS’s long-term debt levels over the past five years. By the end of first nine months of 3Q17 of 2017, CBS had generated free cash flow of $875 million, returning more than $1.3 billion in capital to its shareholders through buybacks and dividend payments.

This clearly indicates that CBS implements its capital return policies through debt financing.

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Comparison with peers

CBS ended 3Q17 with one of the lowest long-term debts among media peers Comcast (CMCSA), Time Warner (TWX), Walt Disney (DIS), and Viacom (VIAB), which have debts of $59.7, $21.9, $19.1, and $11.1 billion, respectively.

However, CBS maintained one of the highest debt-to-equity ratios at 3.23x in 3Q17, compared with Comcast’s (CMCSA), Time Warner’s (TWX), Walt Disney’s (DIS), and Viacom’s ratios ~1.2x, 84.6x, ~61.2x and ~1.8, respectively, which clearly indicates that CBS is hugely dependent on debt financing next to its peers.

In the first three quarters of 2017, CBS incurred interest expenses of $336 million, compared with $304 million during the same period of 2016. The rise in debt could lead to higher interest expenses, which could hurt the company’s bottom line and cash flows.

At the same time, over the next four years, nearly $1.7 billion in debt is expected to mature, while the nearly $3 billion remaining under CBS’s share repurchase authorization could further dent the company’s cash flow moving ahead.


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