Wednesday’s earnings season report from CBS Radio revealed some maneuvering to better position the company for its planned merger with Entercom later this year. CBS Radio had $328 million in revenue for the final quarter of 2016. That is up slightly from the $322 million recorded for Q4 2015.
The financial report from CBS Corp. is the first since its agreement to merge CBS Radio with a subsidiary of Entercom Communications Corp. The combined CBS Radio/Entercom will have 244 stations and operate in 23 of the top 25 radio markets. The merger is expected to be completed in the second half of 2017.
CBS Radio, which trimmed costs through some high-profile early retirement payouts late last year, registered a net earnings loss of $384 million for the quarter thanks to a $444 million one-time accounting charge to “write it down to current fair market value,” according to CBS COO Joe Ianniello.
The radio broadcast group logged $1.220 billion in revenue for the full year ending Dec. 31, 2016, which was pretty much equal to but down slightly from reported yearly income of $1.223 billion in 2015.
The Entercom transaction, still subject to regulatory and Entercom stockholder approvals, is expected to be a tax-free split off for CBS Corp. and its stockholders. It will create a company “with a market cap in excess of $2 billion, a strong balance sheet, significant free cash flow, and the ability to pay an attractive dividend,” according to CBS Corp.
CBS shareholders who participate in the split-off will own 72% of the merged broadcast company. The good news for “CBS shareholders is that the new entity will be positioned to pay a high dividend,” Ianniello said.
CBS Corp., which now reports radio as a discontinued operation, had revenue of $3.518 billion in Q4, which was down from $3.591 billion in the final quarter of 2015. CBS Chairman and CEO Les Moonves said Wednesday that full year revenue for CBS Corp. was up 4% to $13.2 billion, which was an all-time high.
As part of the broadcaster’s content-first strategy “the separation of CBS Radio will reduce our dependency on advertising revenue to 45% of our total revenue. Just a few short years ago that number was 70%. Our goal has been to get the ratio down to 50/50 and we have now surpassed it,” Moonves said.
However, CBS Corp. “missed” street estimates for Q4, according to Wells Fargo Securities analyst Marci Ryvicker.
“Unfortunately entertainment, cable nets and publishing revs all missed the street, while cable OI was also below,” Ryvicker wrote in her analysis. “That said, 2016 is over and there were a lot of comments suggesting that the business is pacing better than expected pretty much everywhere.”