We have closely been following AMC Networks (AMCX) for some time. The stock has suffered over the last 52-weeks, and is currently down 25.1% from the highest levels seen during the period:

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Source: Yahoo Finance

In this column, we check back in on the company to help determine if there is a possible turnaround in the stock’s future. To make this determinization we will examine recent revenue patterns, earnings and discuss projections for 2018.

Revenues take a hit

It has been a struggle for AMC. Fourth quarter net revenues decreased 0.4%, or $3 million, to $727 million over the fourth quarter of 2016. The decrease in net revenues reflected a decrease of 1.3% at the National Networks segment and an increase of 6.9% at the International and Other segment. Given strong expense management and lower losses internationally, operating income got a bump, which was a hidden positive in the quarter.

Operating income

Given the moves we saw in the top line, and factoring in expenses which moved higher, operating income was $162 million, an increase of 55.7%, or $58 million, versus the prior year period.  The operating income increase reflected a decrease of 6.5% at National Networks segment offset by a decrease of 77.6% in operating loss at International and Other segment. But this is a GAAP number, and consisted of a big charge last year.

It is important to understand that the improvement in operating income was primarily related to the absence of $68 million in charges incurred last year in connection to AMC Networks International – Digital Media Center, which was subsequently sold in July 2017.

As such, when accounting for these items, adjusted operating income totaled $206 million, a decrease of 3.4%, or $7 million, versus the prior year period. Much of the decline is still driven by National Networks, which saw segment adjusted operating income decrease 5.2%. Still, there was true improvement at the International and Other segment as adjusted operating income increased 32.2% versus the prior year period.

Bottom line improves

Tax reform was a benefit as was the lack of that big charge from 2016. Factoring in what we saw for operating income and other expenses/taxes, fourth-quarter net income was $146 million ($2.33 per diluted share), compared with $14 million ($0.20 per diluted share) last year. 

If we control for comparable items, adjusted EPS was $105 million ($1.68 per diluted share), compared with $92 million ($1.30 per diluted share) in the fourth quarter of 2016.  The increase in adjusted EPS was primarily related to a decrease in diluted shares, and a decrease in income tax expense.

For the year 2017

Full-year 2017 was a bit better, but still the growth was marginal. Net revenues increased 1.8%, or $50 million, to $2.806 billion over full year 2016, reflecting 2.4% growth at National Networks and a decrease of 0.6% at International and Other. Adjusted Operating Income totaled $905 million, an increase of 3.0%, or $26 million, versus the prior year period. Full-year net income was $471 million ($7.18 per diluted share), compared with $271 million ($3.74 per diluted share) in the prior year period and making some comparable controls, total 2017 adjusted earnings were $484 million ($7.37 per diluted share), compared with $415 million ($5.73 per diluted share) last year.

Our thoughts for 2018

Looking ahead, 2017 was a record year despite the lack of meaningful growth on the top line. Still, the company increased net revenues and adjusted operating income for the seventh consecutive year since going public and we think this continues in 2018.

We are looking for the company to generate significant free cash flow given deals it has made recently, as well as improved operational performance. Programming continues to remain positive, and ratings data suggest viewership remains strong. We are projecting top line growth of 3 to 5%, and earnings per share growth of 18%-25% thanks to tax reform and organic growth. As the name continues to pull back, we are becoming intrigued.