Corus Entertainment Inc. (TSX: CJR.B) released its first quarter results on Friday. Sales of $467 million were up a modest 2% from the prior year. However, that’s still an improvement over the company’s performance one year ago when poor sales raised alarm bells for investors. Net income for the quarter totaled $67 million and was noticeably down from the $85 million reported last year.
Let’s take a closer look at the results and assess just how the company did and whether investors should consider buying on these results.
Costs up on amortization, restructuring-related expenses
The biggest increase in the company’s Q1 expenses came from depreciation and amortization. At over $54 million, it was a significant increase from the $21 million incurred last year and would have more than made up for the difference in profitability. It’s a hefty increase; Corus stated in the release that it was mainly due to a change in estimate for certain assets.
The good news for investors is that this is really a paper adjustment and is not the result of the company incurring more costs or being more inefficient. While it’s disappointing that it had such a big impact on Corus’ results and weighed down profits, it doesn’t reflect any problem in operations.
Corus also incurred restructuring costs of $4.8 million as a result of employee departures from the company. Another $5.4 million was related to lease expenses in its vacated radio offices in Vancouver. These are also one-time expenses that should not occur again in subsequent quarters.
Segmented results show improvement
At the operations level, Corus showed a decent improvement from last year. Television-related revenues were up 2.6%, while radio sales were down by less than 2%. In terms of profitability, however, the results were even better as the segmented bottom line saw an 8% increase from a year ago as television-related profits were up 9% year over year.
The strong showing in the television segment is an important reminder that TV advertising isn’t in danger of disappearing anytime soon.
Strong free cash flow for the quarter
Corus continued to generate free cash flow with $45 million coming through from its operations this past quarter. The company saved cash as a result of a cut to its dividend that it made last year and used the opportunity to pay down its bank loans by $57 million and improve its balance sheet.
Is Corus a buy on these results?
The stock was up 6% out of the gate as investors reacted positively to the earnings. While there may have been concern that profits were down, a deeper look at the financials proved that there was nothing that should make investors hesitant about buying Corus.
It’s a much better start to the year than we saw in 2018, and hopefully it means a much stronger year for Corus. There’s a lot of potential upside for the stock, as it has a long recovering from the share price of a year ago.
