Despite witnessing robust performances across its Television and Cable Networks segments, News Corporation’s (NWSA) third-quarter 2011 top and bottom lines results missed Zacks’ expectations, as the spark of chartbuster movie Avatar that benefited the prior-year results faded away.
While the recent quarter includes the performance of Black Swan, which generated $300 million in box office receipts, it was also weighed down by the promotional costs of Rio.
Rupert Murdoch controlled News Corporation’s quarterly earnings of 26 cents a share fell short of the Zacks Consensus Estimate by a penny, and dropped 10.3% from 29 cents earned in the year-ago quarter. However, the company cited improved fourth-quarter 2011 earnings to alleviate the negative sentiment prevailing on account of lower-than-expected results.
Including charges related to litigation settlement at its Publishing segment, News Corporation informed that quarterly earnings came in at 24 cents, down 25% from 32 cents delivered in the year-ago quarter.
News Corporation, a diversified media conglomerate, hinted that total revenue tumbled 6% year over year to $8,256 million, reflecting weakness across Filmed Entertainment (down 35.8%), Direct Broadcast Satellite Television (down 3.2%) and Publishing (down 1.5%), offset by Cable Network Programming (up 13.5%) and Television (up 23.1%). The Other segment’s revenue plunged 33.6%. Total revenue was below the Zacks Consensus Estimate of $8,511 million.
Total segment operating income, excluding one-time items, slipped 5.2% to $1,188 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 first-quarter 2011 earnings of 58 cents a share — a penny ahead of the Zacks Consensus Estimate but dropped 4.9% from 61 cents earned in the prior-year quarter.
Total revenue in the quarter grew 6% to $6,683 million from the prior year-quarter on the heels of higher advertising revenue at its cable TV networks, and handily beat the Zacks Consensus Estimate of $6,451 million.
Segment Discussion
Operating income at Cable Network Programming jumped 25% to $735 million reflecting a 22% increase in the domestic cable channels operating income and 34% higher contribution from the international cable channels. Both advertising and affiliate revenues increased riding on a rise in contributions from FX Network, STAR India channels and the Regional Sports Networks.
At the domestic cable channels, advertising and affiliate revenues grew 14% and 10%, respectively. At the international cable channels, advertising and affiliate revenues grew 18% and 21%, respectively.
Filmed Entertainment posted an operating income of $248 million, down 50.1% from the prior-year quarter reflecting tough comparisons to previous year’s results, which included the record success of Avatar.
Television segment’s operating income more than quadrupled to $192 million from the year-ago quarter, reflecting higher advertising revenue buoyed by increased revenue from the broadcast of National Football League and Super Bowl XLV, and robust national advertising marketplace. Further, rise in retransmission consent revenue and reduced general entertainment programming expenses, also contributed to the growth.
Direct Broadcast Satellite Televisionor SKY Italia posted segment operating income of $17 million down more than 50% from the year-ago quarter, on account reduced advertising contributions and rise in subscriber acquisition costs, partially offset by lower programming costs.
SKY Italia ended the quarter with a subscriber base of 4.92 million, representing an addition of about 45,000 subscribers during the quarter.
Publishing segment reported an operating income of $161 million, down 33.7% from the year-ago quarter, and excluded the litigation charge of $125 million. News Corporation hinted that the drop in operating income was due to lower advertising revenue at the Australian and U.K. newspapers, divestiture of the Dow Jones Index business in March 2010, fall in contributions from the Integrated Marketing Services business and the launch cost of The Daily.
The Other segment, posted an operating loss of $165 million compared with a loss of $150 million in the previous-year quarter, due to widening losses at Myspace, mainly resulting from a decline in search and advertising revenues, partly offset by reduced operating costs.
Other Financial Details
News Corporation ended the quarter with cash and cash equivalents of $11,784 million, total borrowings of $15,492 million, and shareholders’ equity of $28,413 million, excluding non-controlling interests of $494 million.
Currently, we have a long-term Neutral rating on News Corporation, which is seeking to acquire the remaining 61% stake in British Sky Broadcasting Group, a satellite TV company. The stock holds a Zacks #2 Rank, which translates into a short-term Buy rating.
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