The Single Biggest Reason for CBS Corporation’s Success

Want success? Hire a visionary CEO like CBS did.

If you are an investor, one of the things you hope for in a company you put money into is a visionary CEO. I’m talking Steve Jobs. Steve Wynn. Howard Schultz.   So when it comes to CBS Corporation (NYSE:CBS), CBS stock investors must be loving Les Moonves.

Heck, I love Les Moonves. He knows television. Always has. Back in my TV writing days, when the names of various executives were bandied about, Moonves’ name was always the single most respected. He’s run various divisions at CBS for 23 years, and became CEO of CBS in 2003.   From that year on, Moonves has done right by CBS stock investors.

What has Moonves done for CBS? It sounds deceptively simple. He took over as president and CEO of CBS TV in 1998. What he did was to do what no other network has really managed to do in the past twenty years — brand the network.

Moonves realized what kind of programming drew audiences to CBS — crime shows, with a sprinkling of the standard doctor and lawyer fare.

So he didn’t veer away from that track. That’s the keystone. He knew what his viewers wanted so he gave it to them. By 2005, CBS had six of the top 10 shows: CSI, Without A Trace, CSI;Miami, Survivor: Guatemala, NCIS and Cold Case.

Meanwhile, all the other major networks struggled to find their voice. After NBC’s “Must-See TV” finally wound down, the network totally flailed under Jeff Zucker, who has subsequently turned CNN into an embarrassment of fake news. ABC has struggled, unable to really settle on anything, but has intriguing fantasy/action dramas and soapy stuff.  FOX is the action/spooky network … more or less.

So it was no surprise to me to see Q4 revenues up 11% to $3.9 billion, with full year revenues up 4% to $13.7 billion. CBS stock has also seen eight straight years of EPS growth, and Moonves says 2018 will bring “revenue growth in the high-single digits and EPS growth in the high teens from the record $4.40 we’re reporting to you today”.

Nice.

Revenues were driven by something that Netflix, Inc. (NASDAQ:NFLX) won’t ever have: licensing fees. Those were up 33%. Affiliate and subscription fees were up 20%. Advertising revenues actually fell 3%, but that’s because Q4 of 2016 was inundated with political ads.

CBS By Segments

But let’s look at the segment operating income numbers, because that’s what we need to examine for any media company. Operating income grew from $371 million to $465 million in the entertainment division, but fell across all other lines. Adjusted operating income grew only 1% to $739 million. Much of this was the result of the aforementioned difficult comparison for the previous year — $80 million less in local media revenues due to the absence of political ads.

But Moonves is also wisely managing CBS stock’s finances. CBS purchased an annuity with an insurance company that wiped out $800 million in pension obligations. Underfunded pension obligations are a bomb sitting on various company books, and Moonves is wise to shuttle them off. He also prefunded some pension obligations to the tune of $500 million.

Meanwhile, he reduces debt by issuing $900 million in senior notes averaging 3.3% to replace $500 million in 5.75% senior notes.

If you insist on owning a media company in your portfolio, CBS stock makes for a very nice choice.

Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has played poker with Les Moonves’ brother a few times. He has 23 years’ experience in the stock market, and has written more than 2,000 articles on investing. Lawrence Meyers can be reached at [email protected].


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