News Corporation’s (NWSA - Analyst Report) first-quarter 2013 earnings of 43 cents a share beat the Zacks Consensus Estimate of 37 cents, and rose 34% from 32 cents earned in the prior-year quarter on the back of double-digit growth across Cable Networks.
Including one-time items, News Corporation posted quarterly earnings of 94 cents a share, soaring from earnings of 28 cents delivered in the year-ago quarter.
News Corporation, a diversified media conglomerate, hinted that total revenue rose 2% year over year to $8,136 million on account of revenue growth across Cable Network Programming (up 16% to $2,449 million) and Television (up 4% to $959 million) segments, partially offset by declines at Filmed Entertainment (down 2% to $1,745 million), Direct Broadcast Satellite Television (down 11% to $817 million) and Publishing (down 2% to $2,018 million). The Other segment’s revenue inched up 1% to $148 million. Total revenue also fell short of the Zacks Consensus Estimate of $8,175 million.
Total adjusted segment operating income increased 3% year over year to $1,450 million during the quarter. Management now projects high single to low-double digit growth rate in operating income for fiscal 2013.
Operating income at Cable Network Programming jumped 23% from the prior-year quarter to $953 million, boosted by revenue growth, reflecting an escalation of 33% in the domestic cable channels’ operating income, buoyed by growth across the Regional Sports Networks (RSNs), FX Network and Fox News Channel. Contribution from international cable channels fell 7%.
At the domestic cable channels, affiliate revenue grew 16%, signifying increased rates across all networks, with growth primarily driven by Regional Sports Networks and the Fox News Channel. Advertising revenue climbed 8% owing to the augmentation at Regional Sports Networks and Fox News Channel.
At the international cable channels, affiliate revenue grew 25%, reflecting improvement at FIC and STAR in India, and the consolidation of the Fox Pan American Sports network partly mitigated by strong U.S. dollar. Advertising revenue fell 1% due to strong U.S. dollar that offset growth witnessed at Fox International Channels in terms of local currency.
Filmed Entertainment’s operating income jumped 15% year over year to $400 million, benefiting from the strong theatrical release of Ice Age: Continental Drift and higher contribution from the television production studios.
Television segment’s operating income grew 17% year over year to $156 million on the back of an over twofold rise in retransmission consent revenue and higher local advertising, benefiting from political advertising revenue, partially offset by fall in national advertising revenue.
Direct Broadcast Satellite Television or SKY Italia posted a segment operating income of $23 million, demonstrating a sharp decline from an operating income of $119 million in the year-ago quarter due to increased programming costs and strong U.S. dollar.
SKY Italia ended the quarter with a subscriber base of 4.86 million, representing a net reduction of 40,000 subscribers on account of the sluggish economic environment in Italy.
Publishing segment reported an operating income of $57 million, down significantly from $110 million in the prior-year quarter. News Corporation hinted that the drop in operating income was attributed to the fall in advertising revenue at the Australian and U.S. publishing businesses, partly mitigated by higher contributions from the U.K. newspapers and HarperCollins.
The Other segment posted an operating loss of $211 million compared with a loss of $99 million in the prior-year quarter.
Other Financial Details
News Corporation ended the quarter with cash and cash equivalents of $12,007 million, total borrowings of $16,457 million, reflecting debt-to-capitalization ratio of 38.5%, and shareholders’ equity of $26,264 million, excluding non-controlling interests of $513 million.
On May 9, 2012, the company’s Board of Directors approved a share buyback program that raised the repurchase authorization to $10 billion from $5 billion. Through November 5, 2012, News Corporation bought back approximately $5.8 billion of shares at a price of $18.74 per share.
The major news regarding News Corporation that hit the headlines was its decision to split into two separate publicly traded publishing and media and entertainment entities. There has been immense pressure from shareholders to divest the publishing arm, which has been grappling with lower operating profit compared with the entertainment unit.
The split is expected to take a year. Also, News Corporation’s stakeholders will receive one share in each new company formed for each share they currently hold.
The Publishing Company will comprise publishing businesses, education unit and the integrated marketing services business. On the other hand, Entertainment Company will include cable and television assets, filmed entertainment, and direct satellite broadcasting businesses.
Currently, we have a long-term ‘Neutral’ recommendation on the stock. Moreover, News Corporation, which competes with Time Warner Inc. (TWX - Analyst Report), holds a Zacks #3 Rank that translates into a short-term ‘Hold’ rating.