AMC Networks Inc. Earnings: Content Creation Pays Off

By Anders BylundMarketsFool.com

Jeffrey Dean Morgan starring as The Walking Dead 's Negan. The show attracted 17 million viewers to the first episode of season 7. Image source: AMC.

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AMC Networks (NASDAQ: AMCX) reported results for the third quarter of fiscal year 2016 on Thursday morning. The report apparently left many investors scratching their heads as AMC shares bounced as much as 6.4% higher and 6.5% lower before the tolling of the closing bell, when the stock was up 4.5% from the previous close.

AMC Networks' third-quarter results: The raw numbers

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YOY = year over year. Data source: AMC Networks.

What happened with AMC Networks this quarter?

Zombie drama The Walking Dead is still at the very core of AMC's operations. The first episode of season 7 brought in 17 million same-day or next-day viewers. That's some 5.6 million ahead of that week's second-largest cable audience -- the final presidential debate featuring Donald Trump and Hillary Clinton.

  • Licensing and distribution revenues in the all-important National Networks division increased 8% year over year. At the same time, advertising sales in the same segment decreased by 9.9%. Overall, that division's sales rose by 0.8% to $525.7 million.
  • International sales held steady at $144 million. Strong serial content under the AMC Networks International banner made up for weakness in the international operations of IFC Films.
  • AMC Networks bought back 1.1 million shares during the third quarter, worth a total of $62 million. The company now has approximately $375 million left of a $500 million buyback authorization that took effect in the second quarter.

AMC Networks is not known for offering detailed financial guidance. This time, CFO Sean Sullivan spoke in broad terms about flattish revenue and operating income trends in the international segment but solid growth in the domestic division. There, advertising sales should turn back to year-over-year growth again, supported by double-digit growth percentages in distribution revenues.

What management had to say

On a conference call with analysts, AMC Networks CEO Josh Sapan offered a helpful overview of how self-produced content has become the beating heart of this business:

That's an important strategy shift. Over the past five years, distribution and licensing revenues have risen from 62% of AMC's total consolidated sales to 67%. Long-lasting distribution contracts provide a higher-quality revenue stream than the notoriously volatile advertising operation.

Looking ahead

AMC Networks continues to explore high-quality content production, building on a portfolio that already includes award-winning hits such as The Walking Dead, Mad Men, and Breaking Bad. The company is also moving into new geographical markets, having recently started a Middle East operation covering 21 previously unaddressed countries. Overseas sales accounted for just 23% of AMC's total revenues in the third quarter, leaving plenty of runway for future growth there.

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Anders Bylund has no position in any stocks mentioned. The Motley Fool owns shares of and recommends AMC Networks. Try any of our Foolish newsletter services free for 30 days.

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