News Corporation
's (
NWSA
) fourth-quarter 2012 earnings of 32 cents a share came in line
with Zacks' expectations, but fell 9% from 35 cents earned in the
prior-year quarter. Robust performance across Cable Networks was
more than offset by soft performances across Filmed Entertainment,
Television, Direct Broadcast Satellite Television and
Publishing.
On a reported basis, including one-time items, News Corporation
posted quarterly loss of 64 cents a share, substantially down from
earnings of 26 cents delivered in the year-ago quarter.
News Corporation, a diversified media conglomerate, hinted that
total revenue dropped 7% year over year to $8,370 million on
account of revenue declines across Filmed Entertainment (down 14%
to $1,739 million), Television (down 3% to $1,083 million), Direct
Broadcast Satellite Television (down 15% to $880 million) and
Publishing (down 14% to $2,024 million), partially offset by growth
across Cable Network Programming (up 15% to $2,476 million). The
Other segment's revenue plunged 38% to $168 million. Total revenue
also fell short of the Zacks Consensus Estimate of $8,713
million.
Total adjusted segment operating income fell 8% year over year
to $1,242 million during the quarter. However, including litigation
settlement charges of $57 million, operating income came in at
$1,185 million, down 12% from the year-ago quarter. Management now
projects high single to low-double digit growth rate in operating
income for fiscal 2013.
Another media conglomerate and one of News Corporation's
competitors,
Time Warner Inc.
(
TWX
), posted second-quarter 2012 earnings of 59 cents a share that
beat the Zacks Consensus Estimate by a penny but dropped 1.7% from
60 cents earned in the prior-year quarter. Total revenue slipped 4%
to $6,744 million from the prior year-quarter and also fell short
of the Zacks Consensus Estimate of $6,958 million.
Segment Discussion
Operating income at
Cable Network Programming
jumped 26% from the prior-year quarter to $792 million, boosted by
revenue growth, reflecting a 24% increase in the domestic cable
channels' operating income and 31% higher contribution from the
international cable channels at both Star and Fox International
Channels.
At the domestic cable channels, affiliate revenue grew 16%,
signifying increased rates across all networks, with growth
primarily driven by Regional Sports Networks and the Fox News
Channel. Advertising revenue climbed 5% on owing to the
augmentation at Regional Sports Networks and the National
Geographic Channels.
At the international cable channels, affiliate revenue grew 31%,
reflecting improvement at the Fox International Channels in Latin
America and Asia, and the consolidation of the Fox Pan American
Sports network. Advertising revenue rose 18% on improvement
witnessed in advertising marketplace and viewership trends with
strength witnessed primarily in India and Latin America gaining
from the consolidation of the Fox Pan American Sports network.
Filmed Entertainment
operating income plummeted 43% year over year to $120 million as
the prior-year quarter benefited from the strong theatrical release
of Rio and successful home entertainment performances of Black Swan
and The Chronicles of Narnia.
Television
segment's operating income fell 9% year over year to $213 million,
as the twofold rise in retransmission consent revenue was offset by
the fall in national advertising revenue.
Direct Broadcast Satellite Television
or SKY Italia
posted segment operating income of $89 million, demonstrating a
sharp decline from an operating income of $145 million in the
year-ago quarter. The tough economic climate in Italy, which led to
the fall in subscriber base, impacted the result.
SKY Italia ended the quarter with a subscriber base of 4.9
million, representing a net reduction of 42,000 subscribers on
account of the sluggish economic environment in Italy.
Publishing
segment reported an operating income of $139 million, down
significantly from $270 million in the prior-year quarter. News
Corporation hinted that the drop in operating income was due to the
closure of the publication of 'The News of the World' in the United
Kingdom, and fall in advertising revenue at the Australian and the
U.K. newspapers and the integrated marketing services business.
The
Other
segment posted an operating loss of $168 million compared with a
loss of $137 million in the prior-year quarter as the absence of
losses from the businesses divested, which include Myspace, was
more than offset by an investigation charge of $57
million.
Other Financial Details
News Corporation ended fiscal 2012 with cash and cash
equivalents of $9,626 million, total borrowings of $15,455 million,
reflecting debt-to-capitalization ratio of 38.5%, and shareholders'
equity of $24,684 million, excluding non-controlling interests of
$501 million.
On May 9, 2012, the company's Board of Directors approved a
share buyback program that raised the repurchase authorization to
$10 billion from $5 billion. Through August 7, 2012, News
Corporation bought back approximately $5.1 billion of shares at a
price of $18.18 per share. Management also declared a quarterly
dividend of 8.5 cents a share to be paid on October 17, 2012 to
shareholders of record as of September 12, 2012.
2013 Outlook
Looking into fiscal 2013, management anticipates channels
businesses to deliver healthy earnings growth on the back of
sustained double-digit increase at Cable Networks and growth at
international channels, as well as increase in advertising and
affiliate revenues buoyed by FOX News, Regional Sports Networks and
FX Network.
Further, management expects Television division earnings to
increase due to sustained growth in retransmission consent revenue
and a robust political advertising market due to upcoming elections
in November. News Corporation hinted that increase at channels
businesses will be partly mitigated by lower contributions from SKY
Italia on account of the challenging economic condition in Italy.
In addition, management intends to make strategic investments in
its education division.
Split Confirmed
The major news regarding News Corporation that hit the headlines
was its decision to split into two separate publicly traded
publishing and media and entertainment entities. There has been
immense pressure from shareholders to divest the publishing arm
which has been grappling with lower operating profit compared with
the entertainment unit.
We believe that the breakup would help News Corporation reinvent
its image, which was tainted due to the phone hacking scandal that
resulted in the closure of the publication of 'The News of the
World' and abstinence from acquiring the remaining 61% stake in the
British Sky Broadcasting Group. The split is expected to take a
year. Also, News Corporation's stakeholders will receive one share
in each new company formed for each share they currently hold.
The Publishing Company will comprise publishing businesses,
education unit and the integrated marketing services business. On
the other hand, Entertainment Company will include cable and
television assets, filmed entertainment, and direct satellite
broadcasting businesses.
Currently, we have a long-term 'Neutral' recommendation on News
Corporation. Moreover, the stock holds a Zacks #3 Rank that
translates into a short-term 'Hold' rating.
NEWS CORP INC-A (NWSA): Free Stock Analysis
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