NWSA

News Corporation (NWSA)

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News (NWSA)

Q3 2011 Earnings Call

May 04, 2011 4:30 pm ET

Executives

David DeVoe - Chief Financial Officer, Principal Accounting Officer, Senior Executive Vice President, Executive Director, Senior Executive Vice President of News America, Director of BSkyB, Director of NDS, Director of News America and Director of STAR

Reed Nolte - Senior Vice President of Investor Relations

Chase Carey - Deputy Chairman, President and Chief Operating Officer

Analysts

Jolanta Masojada - Crédit Suisse AG

Staci Kramer - Paidcontent.org

Michael Morris - Davenport & Company, LLC

Jessica Cohen - BofA Merrill Lynch

Georg Szalai

Benjamin Swinburne - Morgan Stanley

Richard Greenfield - BTIG, LLC

Michael Nathanson - Nomura Securities Co. Ltd.

Barton Crockett - Lazard Capital Markets LLC

Alan Gould - Evercore Partners Inc.

James Mitchell - Goldman Sachs Group Inc.

Adam Alexander - Goldman Sachs

Unknown Analyst -

James Dix - Wedbush Securities Inc.

Peter Ryan

David Bank - RBC Capital Markets, LLC

Tuna Amobi - S&P Equity Research

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the News Corp. Third Quarter 2011 Earnings Release. [Operator Instructions] I'd now like to turn the conference over to Reed Nolte, Senior Vice President, Investor Relations, News Corporation. Please go ahead.

Reed Nolte

Thank you very much, operator. Hello, everyone, and welcome to our Third Quarter Fiscal 2011 Earnings Conference Call. On the call today are Chase Carey, President and Chief Operating Officer; and Dave DeVoe, our Chief Financial Officer. First, we will give some prepared remarks on the most recent quarter, and we'll be happy to take your questions first from the financial committee and then from the press.

This call may include certain forward-looking information with respect to News Corporation's business and strategy. Actual results could differ materially from what is said. News Corporation's Form 10-Q for the three months ended March 31, 2011, identifies risks and uncertainties that could cause actual results to differ. And these statements are qualified by the cautionary statements contained in such filings. Additionally, this call will include certain non-GAAP financial measurements. The definition of such measures can be found in our earnings release and our 10-Q filing.

Finally, please note that certain financial measures used in this call, such as adjusted segment operating income, adjusted earnings per share and adjusted net income, are expressed on a non-GAAP basis. The GAAP to non-GAAP reconciliation of segment operating income and the EPS and net income reconciliation is included in our earnings release.

With that, I'll turn it over to Dave.

David DeVoe

Reed, thank you, and good afternoon, everybody. As you all have seen in today's earnings release, our results in the third fiscal quarter were led by exceptionally strong performance at our Cable Programming and Television segments. These 2 segments combined were up 48% compared to the third quarter a year ago. Part of these results were offset by a very difficult comparisons in Filmed Entertainment related to Avatar's record box office performance a year ago and reduced publishing contributions.

Our reported results this quarter reflect a onetime $425 million pretax charge related to the previously announced litigation settlement involving the company's Integrated Marketing Services business, which is reflected in this quarter's publishing segment operating income. After adjusting for this item, we reported total segment operating income of $1.19 billion for the third quarter, 5% below the year ago quarter's results of $1.25 billion.

Our share of reported results from our associated companies were down $70 million in the quarter, and after adjusting for gains on business dispositions in each year, results were down approximately $80 million. This decline is primarily due to our share of losses from our ESPN Star Sports joint venture in Asia, resulting from their wall cricket broadcast, as well as from our increased ownership in Sky Deutschland.

Excluding the net income effects in both years of onetime items, a large of this year's litigation settlement charge as well as News Corporation's share of gains by our associates on their business dispositions, third quarter adjusted earnings per share this year is $0.26 compared with the year ago adjusted result of $0.29. Our press release includes a reconciliation to our GAAP amount.

Now I'd like to provide some additional information on a few of our businesses. Let's start with our Cable Networks. This segment continues to drive overall company results, generating over 60% of News Corporation's total segment operating income.

Third quarter Cable segment operating income contributions increased 25% over year ago levels to $735 million with double-digit earnings growth at all our major channels. This growth continues to be top line driven with segment revenues up 13%. Advertising revenues at the Cable Networks increased 16% over year ago levels and affiliate fees grew 12%.

The illustrated momentum of this business, I'd like to give you a few highlights. Fox News generated its highest ever operating profit in profit margin in the quarter. We also look forward to continue the affiliate revenue growth from affiliate deals to be renewed before the 2012 election.

FX now ranks as the number 7 most popular cable channel in prime time among 89 basic cable competitors for this March quarter 18 to 49 ratings, up 20% on average over year ago levels.

At our Fox International Channels, we now operate the number 1 and number 2 ranked pan-regional channels at Latin America under the Fox and National Geographic brand, and they are performing well ahead of our plan.

In India, where STAR is the leading television network, we've already generated 55% more in earnings to the third quarter than we did it all the 12 months of fiscal 2010.

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