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Why Is Fox (FOXA) Up 12.8% Since Last Earnings Report?

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A month has gone by since the last earnings report for Fox (FOXA - Free Report) . Shares have added about 12.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Fox due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Fox Earnings Top Estimates in Q4, Revenues Down Y/Y

Fox Corporation reported fourth-quarter fiscal 2020 adjusted earnings of 62 cents per share that beat the Zacks Consensus Estimate by 1.6% and remained flat year over year.

Revenues were down 3.8% year over year to $2.41 billion. The figure surpassed the consensus mark by 0.4%.

Affiliate fees (62.8% of revenues) rose 7.7% to $1.51 billion. Other revenues (7.7% of revenues) inched up 1.1% from the year-ago quarter’s levels to $187 million.

Meanwhile, Advertising (29.4% of revenues) revenues declined 22.4% to $712 million.

Fox became a standalone, publicly-traded company on Mar 21, 2019, following the merger of Disney and Twenty-First Century Fox, Inc.

The standalone Fox’s portfolio comprises Twenty-First Century Fox’s news, sports and broadcast businesses. These include FOX News, FOX Business, FOX Broadcasting Company (the FOX Network), FOX Sports, FOX Television Stations Group, sports cable networks like FS1, FS2, FOX Deportes and Big Ten Network as well as certain other assets.

Top-Line Details

Cable Network Programming (52.6% of revenues) revenues declined 2.2% year over year to $1.27 billion. While revenues from Affiliate fees increased 0.9% year over year, advertising revenues declined 7.6% primarily due to the postponement of live events at FS1 as a result of COVID-19. This was partially offset by higher advertising revenues at FOX News Media.

Affiliate revenues benefited from contractual price increases, offset by net subscriber declines.

Other revenues declined 30.6% on a year-over-year basis, primarily due to lower revenues at FOX Sports as a result of COVID-19.

Television (46% of revenues) revenues declined 5.9% from the year-ago quarter’s figure to $1.11 billion. Advertising revenues declined 29.3% year over year due to weaker local advertising market at the FOX Television Stations, the postponement of live events at FOX Sports and lower ratings stemming from fewer hours of scripted programming at FOX Entertainment as a result of COVID-19.

Meanwhile, Affiliate fees and other revenues increased 22.3% and 13.3%, respectively. Affiliate revenues were driven by increases in fees from third-party FOX affiliates and higher average rates per subscriber, partially offset by net subscriber declines at the company’s owned and operated television stations.

Operating Details

In fourth-quarter fiscal 2020, operating expenses fell 12.6% year over year to $1.18 billion. As a percentage of revenues, operating expenses contracted 490 basis points (bps) to 49.1%.

Selling, general & administrative (SG&A) expenses increased 8.6% on a year-over-year basis to $494 million. As a percentage of revenues, SG&A expenses expanded 230 bps to 20.4%.

The year-over-year increase in SG&A expenses was primarily due to higher costs related to FOX operating as a standalone public company.

Segment EBITDA increased 4.7% year over year to $742 million. EBITDA margin expanded 250 bps on a year-over-year basis to 30.7%.

Cable Network Programming EBITDA improved 12% to $674 million. EBITDA margin grew 670 bps to 53%.

However, Television EBITDA declined 21% to $169 million. EBITDA margin contracted 290 bps to 15.2%.

Balance Sheet

As of Jun 30, 2020, Fox had $4.64 billion in cash and cash equivalents compared with $3.19 billion as of Mar 31, 2020.

Long-term debt as of Jun 30, 2020 was $7.94 billion compared with $6.75 billion as of Mar 31, 2020.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 18.59% due to these changes.

VGM Scores

Currently, Fox has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, Fox has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.


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