NWSA

News Corporation (NWSA)

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News (NWSA)

Q2 2013 Earnings Call

February 06, 2013 4:30 pm ET

Executives

Reed Nolte - Senior Vice President of Investor Relations

David F. DeVoe - Executive Director

Chase Carey - President, Chief Operating Officer, Director, Chief Operating Officer of The Media & Entertainment Arm and President of The Media & Entertainment Arm

James Rupert Murdoch - Deputy Chief Operating Officer, Director, Chairman of News International and Chief Executive Officer News International

Analysts

Benjamin Swinburne - Morgan Stanley, Research Division

David Bank - RBC Capital Markets, LLC, Research Division

Richard Greenfield - BTIG, LLC, Research Division

Todd Juenger - Sanford C. Bernstein & Co., LLC., Research Division

Michael Nathanson - Nomura Securities Co. Ltd., Research Division

Jessica Reif Cohen - BofA Merrill Lynch, Research Division

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

John Janedis - UBS Investment Bank, Research Division

Alan S. Gould - Evercore Partners Inc., Research Division

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the News Corporation's Second Quarter 2013 Earnings Release. [Operator Instructions] And today's conference is being recorded. I'd now like to turn the conference over to Reed Nolte, Senior Vice President, Investor Relations, News Corporation.

Reed Nolte

Thank you very much, Ryan. Hello, everyone, and welcome to our second quarter fiscal 2013 earnings conference call. On the call today are Chase Carey, President and Chief Operating Officer; James Murdoch, Deputy Chief Operating Officer; and Dave DeVoe, our Chief Financial Officer.

First, we'll get some prepared remarks on the most recent quarter and we'll be happy to take questions from the investment community.

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 December 31, 2012, 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 and a reconciliation of such measures can be found on our earnings release and our 10-Q filing.

Finally, please note that certain financial measures used in this call, such as segment operating income, adjusted segment operating income and adjusted EPS are expressed on a non-GAAP basis. The GAAP to non-GAAP reconciliation of these non-GAAP measures is included in our earnings release. And with that, I'll turn the call over to David.

David F. DeVoe

Reed, thank you, and good afternoon, everyone. As you all have seen in today's earnings release, our second quarter reflected continued solid growth in our Cable Networks, retrans led growth at our Television businesses, and overall improvement at our Publishing segment. Higher earnings contributions from these segments were partially offset by declines in SKY Italia and slightly lower profits at Filmed Entertainment.

The current quarter's operating income result also includes: $26 million in cost related to the proposed separation of the company's entertainment and publishing businesses; and a $56 million charge related to the ongoing investigations in the United Kingdom, as compared to $87 million in the second quarter a year ago. Excluding these charges from both years, second quarter adjusted total segment operating income of $1.66 billion increased 5% from the year-ago adjusted result of $1.58 billion.

Second quarter reported revenues were up 5%, highlighted by strong Cable Network increases of 18%. All segments reported higher revenues with the exception of SKY Italia, where local currency revenues were essentially unchanged, but reported U.S. dollar revenues declined due to the strong dollar.

Our share reported results from our equity earnings and affiliates was up $32 million in the quarter. With this increase, primarily reflecting this quarter's higher gain from participation in BSkyB's share repurchase program, partially offset by a onetime cost at Hulu, resulting from their purchase of Providence 10% ownership stake.

Also included in this quarter result is $1.4 billion of income, which is included in Other, primarily from non-cash gains related to our acquisition of remaining ownership stakes in Fox Sports Australia and the ESPN STAR network -- Star Sports, rather. These gains were partially offset by $65 million of pretax restructuring charges.

Reported net income in the quarter was $2.38 billion, with reported earnings per share of $1.01 as compared to reported earnings per share a year ago of $0.42. Excluding the net income effects in both years and one-time items, primarily consisting of the items I just highlighted, second quarter adjusted earnings per share this year are $0.44 compared to the year-ago adjusted result of $0.39, a 13% earnings per share improvement. Our press release includes a reconciliation of our GAAP results to these amounts. The reduction of shares outstanding versus last year accounted for a $0.03 per share contribution to adjusted EPS this quarter.

Now I'd like to provide some additional context on the performance at a few of our businesses, and let's begin with the Cable Networks. This segment continues to drive overall company results, generating 60% of News Corporation's total segment operating income. Second quarter Cable segment results were driven by an overall 18% revenue increase, reflecting organic, domestic and international channel strength, as well as the inclusion of new international sports networks in Latin America and Asia. Similar to our first quarter, this quarter included the planned increased investments, both in sports rights in the United States and India, as well as the ramp up of international sports channels. These investments are in line with our strategy to create new strong cable sports franchises that will provide the foundation for a whole new level of long-term sustainable earnings growth. Additionally, the current quarter also includes a net negative $45 million impact related to the NBA lockout in the prior year and the NHL lock out in the current quarter. As a result of these investments and the lockout's impact, this quarter's operating income growth moderated to 9% domestically and 3% internationally.

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