News Corporation (NWSA)

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News (NWSA)

Q2 2012 Earnings Call

February 08, 2012 4:30 pm ET


Reed Nolte - Senior Vice President of Investor Relations

David F. DeVoe - Chief Financial Officer, Principal Accounting Officer, Senior Executive Vice President and Executive Director

Chase Carey - Deputy Chairman, President and Chief Operating Officer


Jessica Reif Cohen - BofA Merrill Lynch, Research Division

David Bank - RBC Capital Markets, LLC, Research Division

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

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

Richard Greenfield - BTIG, LLC, Research Division

Benjamin Swinburne - Morgan Stanley, Research Division

Anthony J. DiClemente - Barclays Capital, Research Division

John Janedis - UBS Investment Bank, Research Division

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

Jolanta Masojada - Crédit Suisse AG, Research Division

Edmund Lee

Russell Adams

Andrew Edgecliffe-Johnson

Ryan Nakashima

Peter Ryan



Ladies and gentlemen, thank you for standing by, and welcome to News Corporation's Second Quarter 2012 Earnings Release. [Operator Instructions] Right now, I'd like to turn the conference over to Reed Nolte, Senior Vice President, Investor Relations, News Corporation.

Reed Nolte

Thank you very much, operator. Hello, everyone, and welcome to our second quarter fiscal 2012 earnings conference call. On the call today are Chase Carey, President and Chief Operating Officer; and Dave DeVoe, our CFO. First, we'll give some prepared remarks on the most recent quarter, and then we'll be happy to take your questions, first from the financial community 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 3 months ended December 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 and a reconciliation 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 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, EPS, net income are 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've seen in today's earnings release, we are quite pleased with our continued progress in fiscal 2012. We reported second quarter segment operating income of $1.5 billion, this is a 16% increase over last year. This improvement was led by a more than doubling of the contributions from of our Filmed Entertainment segment, as well as strong double-digit growth increases at our Cable Programming and Television segments. These increases more than offset declines at our Publishing and Other segments.

There are number of items in this year's second quarter worth highlighting for you. In the quarter, we recorded $87 million in costs related to the ongoing investigation in the United Kingdom, which is reflected in the Other segment and significantly affected our operating income. We reported a $125 million pretax income in Other net line, which primarily reflects a non-cash gain related to the consolidation of Fox Pan American Sports. Additionally, equity earnings of affiliates includes a $44 million pretax gain from BSkyB's share repurchase program. And lastly, we took a $36 million restructuring charge primarily related to our international newspapers.

Reported net income in the quarter was $1.06 billion, with reported earnings per share of $0.42 as compared to reported earnings per share a year ago of $0.24. Excluding the net income effect in both years of onetime items consisting of the 4 items I just highlighted, as well as the comparable year ago charges, second quarter earnings per share this year of $0.39 compared with a year ago adjusted result of $0.29 and 34% earnings per share improvement. In addition to the operational achievements, the improved earnings per share result reflects $0.02 per share benefit from reduced shares outstanding as a result of the repurchases under our buyback program.

With that, I'd like to provide some additional context on a few of our businesses. Let's start with the Cable Networks. This segment continues to drive overall company results, generating nearly 60% of News Corporation segment operating income. Second quarter Cable segment operating income contributions increased 20% over last year's level to $882 million. This growth continues to be top line driven with segment revenues up 9%. Affiliate fees at the Cable Networks increased 11% over a year ago level, with domestic channel affiliate fees up 9% and international fees up 19%.

Second quarter advertising revenues were up approximately 6% over last year at both the domestic, international cable channel businesses. And please note that the domestic channel ad trends includes an adverse impact at the Regional Sports Networks by the delay of the start of the NBA season.

At our other domestic channels, advertising revenues were up 14% in the aggregate, driven by particular strength in FX. At our international channels, the Fox International Channels continued to report double-digit advertising revenue, while growth at STAR, its strong local currency advertising growth was more than offset -- was offset rather on a U.S. dollar reported basis due to the weakening of the Indian Rupee.

As noted in today's press release, the NBA lockout resulted in a net earnings benefit to the Cable segment in the quarter of approximately $55 million, with reduced rights and production cost more than offsetting the advertising and affiliate fee reductions. This benefit will reverse itself in the second half of our fiscal year as those NBA costs now shift to our third and fourth fiscal quarters, consistent with the timing of the games under the revised NBA schedule.

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