21st Century Fox Q3 Earnings Beat Ests - Analyst Blog

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Driven by a 12.6% rise in affiliate fees and an extremely successful Super Bowl broadcast this year, Twenty-First Century Fox, Inc .'s ( FOXA ) third-quarter fiscal 2014 adjusted earnings of 47 cents topped the Zacks Consensus Estimate of 35 cents. Moreover, it rose nearly 46.9% year over year leading to a 2.4% rise in stock price in the after-market trading session.

Moreover, the media conglomerate reported a 12.0% year-over-year increase in total revenue to $8,219 million and was way ahead of the Zacks Consensus Estimate of $7,884 million.

The rise was due to growth across Cable Network Programming (up 11.5% to $3,152 million), Direct Broadcast Satellite Television division (up 15.9% to $1,530 million) and Television (up 27.1% to $1,587 million), partly run down by Filmed Entertainment segment (down 2.9% to $2,279 million).

The company's total segment operating income before depreciation and amortization (OIBDA) registered 13.8% year over year to $1,787 million in the quarter, owing to increased OIBDA at T elevision, Filmed Entertainment and Cable Network programming segments, partly offset by declining OIBDA at Direct Broadcast Satellite Television division.

Segment Discussion

Operating income at Cable Network Programming grew 10.0% from the prior-year quarter to $1,176 million on the back of growth across all networks and benefits from the consolidation of the recently acquired businesses. These positives were partly offset by a 12.0% rise in expenditure related to the new cable channel initiatives and 4.0% negative impact from fluctuations in foreign exchange rates.

OIBDA contribution from domestic channels increased 13.0% owing to sturdy OIBDA growth at the RSNs, FX Network and Fox News Channel.

Further, at the domestic cable channels, affiliate revenues grew 12.0% due to continued growth across RSNs, FX Network and Fox News Channel along with contributions from the launches of Fox Sports 1 and FXX. Advertising revenues climbed 8.0%.

On the other hand, OIBDA contribution from International cable channels decreased 1.0% year over year mainly due to adverse currency fluctuations. Affiliate revenues grew 12.0% on the back of improved performances at FIC, partly offset by a 9.0% negative impact from the stronger U.S. dollar, chiefly in Latin America. Advertising revenue rose 4.0%.

Filmed Entertainment 's operating income grew 6.0% year over year to $354 million, driven by increased contribution from television products especially subscription video on demand (SVOD) revenues partly offset by theatrical launch costs of Rio 2.

Television segment's operating income rose 32.0% year over year to $288 million due to increased advertising (mainly due to Super Bowl XLVIII and NLF playoffs, partly offset by declining ratings of American Idol ) and retransmission consent revenues.

Direct Broadcast Satellite Television posted a segment operating profit of $58 million; a sharp fall of 36.3% from the year-ago quarter due to higher programming costs associated with SKY Italia's broadcast of the Sochi Olympics and Sky Deutschland's broadcast of Bundesliga soccer event. The 16.0% rise in segment revenues due to increasing subscriber base at Sky Deutschland and a 4.0% positive impact of a strong Euro was not enough to mitigate the higher costs.

SKY Italia ended the quarter with a subscriber base of 4.75 million and Sky Deutschland's net direct subscribers increased by 64,000 in the quarter, taking the total direct subscribers count to 3.73 million.

Other Financial Details

Twenty-First Century Fox, which competes with CBS Corporation ( CBS ) ended the quarter with cash and cash equivalents of $5,517 million, total borrowings of $19,054 million, reflecting a debt-to-capitalization ratio of 52.2%, and shareholder equity of $17,463 million, excluding non-controlling interest of $3,501 million.

Earlier, on Aug 8, 2013, the company's board of directors approved a share buyback program of $4 billion. In the quarter, Twenty-First Century Fox bought back 31.2 million shares worth $1 billion, bringing the year-to-date count to 84.7 million shares for $2.8 billion.

Other Developments

In Mar 2014, the company received approval from the shareholders as well as the Australian Securities Exchange (ASX) for delisting from the ASX. Delisting is likely to occur around May 8, 2014. In Jan 2014, the company had announced its decision to remove its listing from ASX, subject to approval from its shareholders.

In March, Twenty-First Century Fox concluded the deal to increase its stake in Yankees Entertainment and Sports Network (YES) to 80%. The company shelled out approximately $680 million for the 31% additional stake and $160 million of extra costs on behalf of YES Network.

Guidance

Management expects solid fourth quarter performance at Filmed Entertainment driven by movies such as X-Men Days of Future Past and Rio 2 .

Management reiterated total earnings before interest, taxes, depreciation and amortization (EBITDA) in fiscal 2014 to grow in the mid to high single-digit range, above the $6.26 billion total segment EBITDA base level of fiscal 2013.

Twenty-First Century Fox carries a Zacks Rank #3 (Hold). Other media stocks worth considering include Lions Gate Entertainment Corp. ( LGF ) and The Walt Disney Company ( DIS ). Lions Gate carries a Zacks Rank #1 (Strong Buy) whereas Walt Disney carries a Zacks Rank #2 (Buy).


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: ASX , CBS , DIS , FOXA , LGF

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