Fox Benefits From The Success Of X-Men And Rio 2; Earnings Jump 35%

Twenty First Century Fox ( FOX ) recently reported its fourth quarter earnings for fiscal 2014 (fiscal years end with June). Revenues jumped 17% to $8.42 billion and EBITDA grew 19% to $1.77 billion, driven by its movie and cable networks business. Earnings per share jumped 35% to $0.42 as compared to the prior year period. Lower ratings at the broadcasting networks weighed over advertising income, which declined 11% during the quarter. However, advertising was strong at the cable networks, driven by the company's regional sports networks.

Fox will close the BSkyB transaction by end of December this year. Removing the contribution from Sky Italia and Sky Deutschland, the reported EBITDA for fiscal 2014 stands at $6.29 billion. The full year guidance for fiscal 2015 EBITDA's growth rate is in the high-single digits over the $6.29 billion figure. We will be updating our model for these adjustments after the BSkyB transaction is closed in December.

The company also decided to withdraw its bid for rival media house Time Warner ( TWX ). Fox has been eyeing Time Warner and was rebuffed in an $80 billion bid last month. The company has a huge cash pile of $5.42 billion and it will receive another $9 billion after completion of BSkyB transaction. In the earnings call, the company announced a fresh $6 billion buyback as it feels the stock is highly undervalued.

We currently have $35 price estimate for 21st Century Fox which we will soon update based on the recent quarterly earnings.

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Fox Rides High Over The Success Of X-Men

Revenues at the filmed entertainment division grew 38% to $2.8 billion while EBITDA nearly tripled to $339 million as compared to $117 million reported in the prior year quarter. The studio benefited from the success of X-Men: Days of Future Past , which has so far grossed $740 million in worldwide box-office. Another hit in the quarter was Rio 2 , which has so far grossed over $490 million at the box-office globally. Syndication of some of its popular shows further aided the overall growth at the filmed entertainment division.

Fox currently ranks No. 1 with market share of 18.1% at the U.S. box-office. The studio will continue to benefit from its movies in the next quarter as well, driven by the success of How To Train Your Dragon 2 and Dawn of the Planet of Apes . Our 2014 revenue forecast for calendar year 2014 currently stands at $9.21 billion.

Cable Networks Continue To Grow While Broadcasting Declines

Cable networks saw 13% revenue growth in the quarter led by higher affiliate fees. Currency fluctuations in Latin America and India had a 3% adverse impact on segment EBITDA, which grew 11% to $1.2 billion. Domestic advertising grew 12% in the quarter driven by its regional sports networks. However, the ratings at its other cable networks such as Fox News have declined this year. This could put some pressure on advertising revenues in the near term. Fox News quarterly ratings were down 20% in total day and 16% in primetime in total viewers as compared to the prior year quarter. This is its lowest quarterly performance since 2001. While the fall in news network ratings is visible across the board, Fox's decline was far worse than MSNBC's.

The impact of lower ratings was predominantly visible on broadcasting network. Revenues at broadcasting declined 6% to $1.04 billion and EBITDA plunged 32% to $145 million. While there was an increase in retransmission consent, it was more than offset by 11% decline in advertising income. Lower advertising income is a result of lower ratings at some of its popular shows such as American Idol . The impact of lower ratings was also visible in the upfront sales, where Fox saw lower volume and moderate gains in ad pricing. Accordingly, our forecast for Fox Broadcasting and MyNetworkTV revenue stands at $5.27 billion in calendar year 2014.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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