News Corporation (NWSA), a diversified media conglomerate, recently posted better-than-expected second-quarter 2011 results on the heels of improved advertising performance at its Cable Networks and Television Stations.
The second quarter results highlight the increasing worldwide channel business on the back of widening subscriber base, rise in affiliate fees and improved advertising market place. The U.S. broadcasting business, which includes local TV stations and the Fox Broadcasting Company, also continues to recover its lost sheen.
Both Top and Bottom Lines Outpaced
Rupert Murdoch controlled News Corporation’s quarterly earnings of 29 cents a share came a penny ahead of the Zacks Consensus Estimate, and rose 16% from 25 cents earned in the year-ago quarter.
On a reported basis, including one-time items, quarterly earnings came in at 24 cents a share, rising more than twofold from 10 cents delivered in the prior-year quarter. Following this, a positive sentiment may be palpable among the analysts covering the stock, and we could witness a rise in the Zacks Consensus Estimates in the coming days.
News Corporation hinted that total revenue rose marginally by 0.9% year over year to $8,761 million driven by strength across Cable Network Programming (up 12.4%), Television (up 9.7%), and Publishing (up 0.8%), offset by Filmed Entertainment (down 4.7%) and Direct Broadcast Satellite Television (down 6.3%). The Other segment’s revenue tumbled 28.6%. Total revenue came ahead of the Zacks Consensus Estimate of $8,743 million.
Total segment operating income, excluding one-time items, jumped 6.2% to $1,287 million during the quarter. News Corporation continues to expect fiscal 2011 segment operating income to increase in the low double-digit percentage range.
Another media conglomerate, Time Warner Inc. (TWX), one of the competitors of News Corporation, posted better-than-expected fourth-quarter 2010 results on the heels of an increase in advertising and subscription revenues. The quarterly earnings of 67 cents a share outdid the Zacks Consensus Estimate of 62 cents, and rose 22% from 55 cents earned in the prior-year quarter. Total revenue in the quarter grew 8% to $7,812 million from the previous year-quarter, and handily beat the Zacks Consensus Estimate of $7,477 million.
Segment Discussion
Operating income at Cable Network Programming jumped 21.7% to $735 million reflecting a 16% increase in the domestic cable channels operating income and 37% higher contribution from the international cable channels. Both advertising and affiliate revenues increased riding on a rise in contributions from FOX News Channel, STAR and the Regional Sports Networks.
At the domestic cable channels, advertising and affiliate revenues grew 12% and 10%, respectively. At the international cable channels, advertising and affiliate revenues grew 27% and 17%, respectively.
Filmed Entertainmentposted an operating income of $189 million down 41.7% from the prior-year quarter reflecting tough comparisons to previous year’s results, which included record proceeds from the successful theatrical release of “Ice Age: Dawn Of the Dinosaurs”.
Television segment’s operating income came in at $151 million, up $122 million from the year-ago quarter, reflecting a rise in contributions from the Fox Television Stations (up more than 50%), driven by favorable advertising trends mainly in automotive and financial categories. The results at FOX Broadcasting Company also rose 24%, driven by a jump in advertising revenue from National Football League games and general entertainment programming. Political advertising also boosted the segment.
Direct Broadcast Satellite Televisionor SKY Italia posted segment operating loss of $12 million, reflecting an improvement of $18 million from the prior-year quarter, aided by an increase in advertising and subscription revenues, and lower programming costs.
SKY Italia ended the quarter with a subscriber base of 4.87 million, representing an addition of about 71,000 subscribers during the quarter, which was the highest in two years.
Publishing segment reported an operating income of $380 million, down 7.3% from the prior-year quarter, which excluded the litigation charge of $500 million. News Corporation hinted that the rise in advertising revenue across the newspaper division, was more than offset by a fall in contributions at HarperCollins and $17 million loss in earnings due to the divestiture of the Dow Jones Index business in March 2010.
The Other segment, posted an operating loss of $156 million compared with a loss of $125 million in the previous-year quarter, due to widening losses at the Digital Media Group, mainly resulting from a decline in search and advertising revenues at Myspace, partly offset by healthy operating results at international outdoor business.
News Corporation has been looking for strategic alternatives for Myspace either to spin off or for possible sale. The social networking site recently lowered its headcount by 47%, or approximately 500 staff, in its endeavor to revive or restructure its sagging business.
Other Financial Details
News Corporation ended the quarter with cash and cash equivalents of $8,456 million, total borrowings of $13,179 million, and shareholders’ equity of $27,414 million, excluding non-controlling interests of $451 million.
Currently, we have a long-term “Neutral” rating on News Corporation. However, the stock holds a Zacks #4 Rank, which translates into a short-term ‘Sell’ rating.
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