Headwinds Fail to Deter News Corp. - Analyst Blog


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Despite economic upheaval and the phone hacking scandal that resulted in the closure of the publication of 'The News of the World', News Corporation ( NWSA ) posted better than-expected second-quarter 2012 financial results, beating the Zacks' expectations on both counters. Healthy performances across cable-television networks and film and television studios were the catalysts that drove the quarter's performance.

Owned by Rupert Murdoch, News Corporation's quarterly earnings of 39 cents a share beat the Zacks Consensus Estimate of 34 cents, and surged 34% from 29 cents earned in the year-ago quarter.    

On a reported basis, including one-time benefits and $87 million charges related to the investigation of phone hacking, News Corporation informed that quarterly earnings came in at 42 cents, up substantially from 24 cents delivered in the year-ago quarter.

News Corporation, a diversified media conglomerate, hinted that total revenue edged up 2% year over year to $8,975 million, reflecting growth across Cable Network Programming (up 9%), Filmed Entertainment (up 14%), Television (up 11%), Direct Broadcast Satellite Television (up 0.3%), partially offset by Publishing (down 9%). The Other segment's revenue plunged 52%. Total revenue also came ahead of the Zacks Consensus Estimate of $8,930 million.

Total adjusted segment operating income soared 23% to $1,584 million during the quarter. However, when including phone hacking probing charges, it hurt the operating income by $87 million, which then showed an increase of 16% to $1,497 million. Management cautioned that the series of investigation procedures will adversely impact the company's future profits. Sans these investigation costs, management reaffirmed its low to mid-teens growth in operating income for fiscal 2012.

Another media conglomerate, Time Warner Inc. ( TWX ), one of the competitors of News Corporation, posted fourth-quarter 2011 earnings of 94 cents a share that beat the Zacks Consensus Estimate of 87 cents, and surged 40% from 67 cents in the prior-year quarter, reflecting higher adjusted operating income across Networks and Publishing segments. Total revenue grew 5% to $8,193 million from the prior year-quarter, and handily beat the Zacks Consensus Estimate of $8,096 million.

Segment Discussion

Operating income at Cable Network Programming jumped 20% to $882 million, boosted by growth in revenue, and reflecting a 25% increase in the domestic cable channels' operating income and 8% higher contribution from the international cable channels.

At the domestic cable channels, affiliate revenue grew 9%, reflecting increased rates across Regional Sports Networks and the FX Network. Advertising revenue climbed 6% because of pricing and ratings growth at the FX Network, though partly offset by lower advertising at the Regional Sports Networks due to NBA lockout.

At the international cable channels, affiliate revenues grew 19%, reflecting growth at the Fox International Channels in Latin America. Advertising revenue rose 5% on the back of improvement witnessed in advertising marketplace and viewership trends. Advertising revenue at STAR India remained even with the prior-year period.

Filmed Entertainment operating income more than doubled to $393 million, reflecting the success of - theatrical releases, Alvin and the Chipmunks: Chipwrecked and The Descendants and the home entertainment performance of Rio, Rise of the Planet of the Apes, X-Men: First Class and Mr. Popper's Penguins.

Television segment's operating income surged 25% to $189 million from the year-ago quarter, reflecting higher broadcast network advertising revenue and substantial rise in retransmission consent revenue. These were somewhat offset by rise in programming costs and a drop in local political advertising revenue at the local television stations.

Direct Broadcast Satellite Television or SKY Italia posted segment operating income of $6 million, reflecting a sharp improvement from an operating loss of $12 million in the year-ago quarter, on the back of rise in advertising and subscription revenues and reduced operating and programming expenses.

SKY Italia ended the quarter with a subscriber base of 5.03 million, representing an addition of about 23,000 subscribers during the quarter.

Publishing segment reported an operating income of $218 million, down 43% from the year-ago quarter. News Corporation hinted that the drop in operating income was due to closure of the publication of 'The News of the World' in the United Kingdom, and fall in advertising revenue at the Australian newspapers.

The Other segment, posted an operating loss of $191 million compared with an operating loss $156 million in the prior-year quarter. The current quarter results include an investigation charge of $87 million, which was partially offset by absence of losses from Myspace and Fox Mobile. 

Other Financial Details

News Corporation ended the quarter with cash and cash equivalents of $9,432 million, total borrowings of $15,454 million, reflecting debt-to-capitalization ratio of 36%, and shareholders' equity of $27,454 million, excluding non-controlling interests of $495 million.

On July 12, 2011, the company's Board of Directors approved a share buyback program that raised the remaining authorization of $1.8 billion under the previous program to $5 billion. Through February 7, 2012, News Corporation has bought back approximately $2.7 billion of shares at a price of $16.76 per share.

News Corporation also announced a dividend of 8.5 cents to be paid on April 18, 2012, to shareholders of record as on March 14, 2012.

Currently, we have a long-term 'Neutral' rating on News Corporation. Moreover, the stock holds a Zacks #3 Rank that translates into a short-term 'Hold' recommendation.

NEWS CORP INC-A ( NWSA ): Free Stock Analysis Report
TIME WARNER INC ( TWX ): Free Stock Analysis Report
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