News Corporation (NWSA), a diversified media conglomerate, recently posted better-than-expected first-quarter 2011 results on the heels of improved advertising performance at its Television, Cable Networks and Newspaper segments.
Both Top and Bottom Lines Outpaced
Rupert Murdoch controlled News Corporation’s quarterly earnings of 27 cents a share, beat the Zacks Consensus Estimate of 24 cents, and rose 22.7% from 22 cents earned in the year-ago quarter.
On a reported basis, including one-time items, quarterly earnings came in at 30 cents a share, witnessing a sharp rise of 36.4% from the prior-year quarter. Following this, a positive sentiment may be palpable among the analysts covering the stock, and we may witness a rise in the Zacks Consensus Estimates in the coming days.
Rival media conglomerate Time Warner Inc. (TWX) posted better-than-expected third-quarter 2010 results on the heels of increase in advertising and subscription revenues, and lifted its outlook for full-year 2010. The quarterly earnings of 62 cents per share, which rose 17% from the prior-year quarter, comfortably beat the Zacks Consensus Estimate of 53 cents.
News Corporation hinted that total revenue rose 3.2% year-on-year to $7,426 million driven by the strength across Cable Network Programming (up 16.6%), Television (up 11.2%), and Publishing (up 3.3%), partially offset by Filmed Entertainment (down 1.2%) and Direct Broadcast Satellite Television (down 7.7%). The Other segment revenue fell 25.5%. Total revenue also comfortably surpassed the Zacks Consensus Revenue Estimate of $7,359 million.
Total segment operating income jumped 8.1% to $1,148 million during the quarter. News Corporation continues to expect fiscal 2011 segment operating income to increase in the low double-digit percentage range.
Segment Discussion
Operating income at Cable Network Programming jumped 28.5% to $659 million reflecting a 23% increase in the domestic cable channels operating income and 48% higher contributions from the international cable channels. Management expects the segment to sustain its growth momentum riding on the back of a rise in contributions from FOX News Channel, STAR and the Regional Sports Networks.
Filmed Entertainment posted an operating income of $280 million down 28.4% from the prior-year quarter reflecting tough comparisons to previous year’s results, which include record proceeds from the successful theatrical release of “Ice Age: Dawn Of the Dinosaurs.” Management hinted that it is in talks with James Cameron for the sequel of “Avatar,” which broke all box-office records.
Television segment’s operating income soared 176.3% to $105 million, reflecting a rise in contributions from the Fox Television Stations, driven by favorable advertising trends (up 22%) mainly in the automotive, telecommunications and financial categories, partially offset by lower contributions from FOX Broadcasting Company due to the increase in program cancellation and promotional costs. Political advertising also boosted the segment.
Direct Broadcast Satellite Televisionor SKY Italia segment’s operating income tumbled 35.9% to $82 million due to increased subscriber acquisition costs and higher programming costs related to the FIFA World Cup coverage.
Publishing segment reported an operating income of $178 million, up 50.8% from the prior-year quarter, reflecting a rise in contribution from the newspaper division, which attained a 13% increase in advertising revenue, and aided by lower newsprint and distribution costs.
The Other segment, posted an operating loss of $156 million compared with a loss of $126 million in the previous-year quarter, due to fall in contributions from the Digital Media Group, mainly arising from decline in search and advertising revenues at Myspace, partly offset by healthy operating results at international outdoor business.
Other Financial Details
News Corporation ended the quarter with cash and cash equivalents of $8,814 million, total borrowings of $13,318 million, and shareholders’ equity of $27,009 million, including non-controlling interests.
Beyond the Headline
In a separate story, News Corporation indicated that it intends to bid for the remaining 61% stake in U.K.-based pay TV operator, British Sky Broadcasting (“BSkyB”). The company currently holds a 39% of interest in BSkyB.
After advertising revenue was hit hard by the recent economic downturn, News Corporation was striving to add diverse revenue streams to hedge against economic cycles.
The company has taken a leap towards an online subscription-based model for general news content. News International, a subsidiary of News Corporation, began charging readers for online content for The Times of London and Sunday Times of London effective June 2010.
Moreover, the retransmission and affiliate fees from cable and satellite partners for the right to retransmit broadcast programming have been another source of revenue, which the company thinks would scale new heights in the next couple of years. News Corporation recently resolved its fee spat with Dish Network Corporation (DISH) and Cablevision Systems Corporation (CVC).
Currently, we have a Neutral rating on News Corporation. Moreover, the Zacks #3 Rank, which translates into a short-term Hold rating, correlates with our long-term recommendation.
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