NWSA

News Corporation (NWSA)

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News (NWSA)

Q3 2013 Earnings Call

May 08, 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, President of The Media & Entertainment Arm and Chief Operating Officer of The Media & Entertainment Arm

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

Analysts

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

Jessica Reif Cohen - BofA Merrill Lynch, Research Division

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

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

Marci Ryvicker - Wells Fargo Securities, LLC, Research Division

Barton E. Crockett - Lazard Capital Markets LLC, Research Division

Adam Alexander - Goldman Sachs Group Inc., Research Division

Tim Nollen - Macquarie Research

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Third Quarter 2013 Earnings Release. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Reed Nolte, Senior Vice President, Investor Relations, News Corporation. Please go ahead, sir.

Reed Nolte

Thank you very much, operator. Hello, everyone, and welcome to our third 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 will give some prepared remarks on the most recent quarter, then 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 3 months ended March 31, 2013, 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 the 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 it over to Dave.

David F. DeVoe

Reed, thank you, and good afternoon, everybody. As you all have seen in today's earnings release, our third quarter reflected continued solid growth in our Cable Networks, retrans-led growth at our Television station and increased earnings at Filmed Entertainment. Higher earnings contributions from these segments were partially offset by declines in the Publishing, DBS and other segments.

The current quarter's operating income result also includes $25 million in cost related to the proposed separation of the company's Entertainment and Publishing businesses and a $42 million charge related to the ongoing investigation in the United Kingdom, as compared to a $63 million charge in the third quarter a year ago.

Excluding these charges from both years, third quarter adjusted segment operating income of $1.43 billion increased 4% from the year-ago adjusted result of $1.38 billion.

Third quarter reported revenues were up 14%, led by strong Cable Networks and Filmed Entertainment growth, which were both up 17% compared to the third quarter a year ago. Partially offsetting these revenue increases were mid- to low-single digit declines in Publishing and at SKY Italia.

Additionally, this quarter's result includes the consolidation of Sky Deutschland and Fox Sports Australia, which contributed approximately $540 million in revenue this quarter.

Our share reported results from our equity earnings and affiliates was $47 million lower than a year ago. While this decrease primarily reflects this quarter's reduced gain from participation in BSkyB's share repurchase program, partially offset by the absence of Sky Deutschland's losses, this business is now consolidated.

Also included in this quarter's result is $2.4 billion of income in other net, which is primarily from noncash gains related to our acquisition of the consolidated ownership stake in Sky Deutschland and the sale of our ownership position in SKY Networks Television in New Zealand. These gains were partially offset by $56 million of pretax restructuring charges.

Reported net income in the quarter was $2.85 billion, with reported earnings per share of $1.22 as compared to reported earnings per share a year ago of $0.38. Excluding the net income effect in both years and onetime gains, primarily consisting of the items I just highlighted, third quarter adjusted earnings per share this year are $0.36, slightly below the year-ago adjusted result of $0.37, and this reflects this year's higher adjusted effective tax rate.

Our press release includes a reconciliation of our GAAP results to these amounts. And with that, I'd like to now provide some additional context on the performance at just a few of our businesses. I'd like to begin with the Cable Networks.

This segment continues to drive overall company results, generating about 70% of News Corporation's total segment operating income. Third quarter segment results were driven by strong revenue growth, reflecting organic, domestic and international channel strength, as well as the inclusion of new international sports networks in Europe and Asia. Operating income at the segment grew 17% over year-ago levels, with domestic channels up 16% and international channels up 21%. Reported affiliate fees at the Cable Networks increased 18% over year-ago levels. Domestic affiliate revenues increased 11% over last year, with double-digit growth at all principal domestic channels. While reported international affiliate fees were up 42%, this growth was 25% after factoring out the effects of new sports channel and foreign-exchange, reflecting strong local currency organic growth, both at the Fox International Channels and at STAR.

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