A month has gone by since the last earnings report for News Corp. (NWSA - Free Report) . Shares have added about 10.7% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is News Corp. due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
News Corporation Posts Narrower-Than-Expected Q4 Loss
News Corporation reported better-than-expected fourth-quarter fiscal 2020 results. This diversified media and information services company posted narrower-than-expected loss. Further, the company’s total revenues surpassed the Zacks Consensus Estimate, following a miss in the preceding five quarters. It goes with saying that the coronavirus pandemic did impact the company’s performance with both the top and the bottom lines declining sharply from the year-ago period. The ongoing crisis has compelled industries across the board to curtail marketing expenditures, which in turn hit the company’s advertising revenues.
Nonetheless, to mitigate the impact of COVID-19, management has been taking necessary steps to lower variable costs and implement cost-containment strategies across its businesses with primary focus on the News Media segment. In order to centralize a number of functional areas, News Corporation launched a Shared Services program. This will help minimize costs and favorably impact the bottom line. The company anticipates to recognize annualized cost savings of at least $100 million from this program beginning in fiscal 2022.
News Corporation, which started presenting Dow Jones as a separate reportable unit beginning this quarter, delivered adjusted loss of 3 cents a share that fared better than the Zacks Consensus Estimate of a loss of 9 cents. However, the bottom line declined from the year-ago period. We note that the company had reported earnings of 7 cents in the year-ago period.
Total revenues of $1,923 million surpassed the Zacks Consensus Estimate of $1,863.3 million but declined 22% from the prior-year quarter. The year-over-year decline in revenues reflect negative impacts of about $330 million due to the ongoing pandemic, $179 million owing to the divestiture of News America Marketing and $63 million related to foreign currency fluctuations.
Excluding the impact of acquisitions, divestitures and foreign currency fluctuations, adjusted revenues were $1,922 million, down 13% year over year.
While advertising revenues slumped 52% to $332 million, circulation and subscription revenues fell 11% to $906 million. Consumer revenues also declined 2% to $389 million, while revenues from real estate were down 10% to $193 million. Meanwhile, other revenues plunged nearly 32% to $103 million.
Total segment EBITDA came in at $195 million, reflecting a decline of 28% from the prior-year period. The year-over-year decline was due to fall in total revenues, lower contribution from News America Marketing as a result of the divestiture and adverse impact from foreign currency fluctuations. This was partly mitigated by cost-containment efforts and lower sports rights and production costs at Foxtel related to COVID-19. Again, adjusted total segment EBITDA fell 10% to $199 million.
Revenues at the Digital Real Estate Services segment fell 16% year over year to $238 million due to the negative impact from foreign currency fluctuations and COVID-19 pandemic. Adjusted revenues for the segment declined 13%, while adjusted EBITDA slid 5%.
Revenues at REA Group fell 21% year over year to $127 million primarily on account of unfavorable foreign currency fluctuations, fall in developer revenues owing to the launch of fewer projects and persistent challenges in residential listing volumes, which fell 14% in the quarter. Lower financial services revenues also hurt the REA Group.
Further, revenues at Move fell 10% to $111 million on account of the coronavirus related customer relief measures and fall in advertising revenues. Real estate revenues, which represented 81% of total Move revenues, decreased 5%.
The Subscription Video Services segment’s revenues were $407 million, down 24% year over year on account of lower residential broadcast subscribers, adverse foreign currency fluctuations and the negative impacts from COVID-19. The company witnessed fall in commercial subscription revenues owing to the closures of pubs, clubs and other commercial venues, and reduced advertising revenues due to softness in market. Adjusted revenues for the segment declined 19%, while adjusted EBITDA grew 33%.
Foxtel’s total closing paid subscribers were roughly 2.777 million as of Jun 30, 2020, reflecting a decline of 12%. This decrease was due to fall in residential and commercial broadcast subscribers and lower Foxtel Now subscribers. This was partly offset by subscriber growth at Kayo and the launch of Binge — a new entertainment streaming product — in May. Broadcast subscriber churn was 13.2% in the quarter under review compared with 14.7% in the prior year. Meanwhile, Broadcast ARPU decreased 1% to A$78 (US$51).
Revenues at the Dow Jones segment fell 4% year over year to $381 million mainly due to soft advertising revenues, thanks to COVID-19. This was partly offset by higher circulation and subscription revenues. Segment’s digital revenues represented 71% of total revenues compared with 63% in the prior year. Adjusted revenues for the segment declined 4%, while adjusted EBITDA grew 13%.
Notably, circulation and subscription revenues improved 6% during the quarter under review. However, advertising revenues decreased 28% year over year. This was due to a 43% fall in print advertising revenues on account of general market weakness and lower volume across The Wall Street Journal and Barron’s due to COVID-19, and 7% decline in digital advertising revenues. Digital advertising represented 54% of total advertising revenues in the quarter.
During the quarter under review, total subscriptions to Dow Jones’ consumer products reached roughly 3.8 million, reflecting an increase of 15% from the year-ago period. We note that digital-only subscriptions surged 28%. Subscriptions to The Wall Street Journal rose 15% to approximately 3 million average subscriptions. Digital-only subscriptions to The Wall Street Journal increased 23% to more than 2.2 million average subscriptions in the quarter, and represented 75% of its total subscriptions.
The Book Publishing segment reported revenues of $407 million, down 3% from the prior-year period. This year-over-year decline can be attributed to adverse foreign currency fluctuations and lower retail sales of foreign language titles and in Christian Publishing owing to store closures on account of the pandemic. The decline was somewhat negated by the success of Magnolia Table, Volume 2 by Joanna Gaines. Digital sales, which constituted 29% of Consumer revenues, surged 26% mainly due to growth in e-book sales, particularly in General and Children’s Books. Adjusted revenues for the segment fell 3%, while adjusted EBITDA improved 9%.
Revenues at the News Media segment plunged 41% year over year to $490 million in the reported quarter. Divestitures of News America Marketing in May 2020 and Unruly in January 2020 hurt the segment’s revenues by 22% and 2%, respectively. Foreign currency fluctuations also hurt the segment’s revenues by 2%. Within the segment, revenues at News Corp Australia and News UK decreased 31% and 22%, respectively. Adjusted revenues for the segment fell 22%.
Circulation and subscription revenues decreased 9% during the quarter under review. Advertising revenues fell 58% year over year owing to the divestiture of News America Marketing, softness in the print advertising market, suspension of certain community titles in Australia, adverse foreign currency fluctuations and a negative impact from the pandemic.
Digital revenues accounted for 24% of the News Media segment revenues compared with 19% in the year-ago period. As of Jun 30, The Times and Sunday Times closing digital subscribers were 336,000. Closing digital subscribers at News Corp Australia’s mastheads were 647,600. The Sun’s digital offering reached roughly 133 million global monthly unique users in June 2020, while New York Post’s digital network reached about 150 million average monthly unique users.
Other Financial Aspects
News Corporation ended the quarter with cash and cash equivalents of $1,517 million, borrowings of $1,183 million and shareholders’ equity of $7,582 million, excluding non-controlling interest of $807 million.
Net cash provided by operating activities of $780 million for fiscal 2020 was lower than $928 million in the prior year. Capital expenditures of $438 million were incurred during the fiscal year. Free cash flow available to News Corporation was $180 million compared with $213 million. Management expects to incur capital expenditures of approximately $400 million in fiscal 2021.
Key Things to Note
With respect to Digital Real Estate Services segment, management highlighted that owing to the uncertainty in economic recovery there is volatility in the housing markets in the United States and Australia. News Corporation stated that while Australian national residential listings in July rose 16% year over year, increase in residential revenues at REA Group is expected to be negated by fall in development projects, listing declines in the commercial and Asia businesses, and the recent government restrictions in Victoria. It also informed that Move continues to experience soft industry-wide transaction volumes.
For Subscription Video Services segment, News Corporation informed that the company’s commercial subscription revenues continue to be hurt by the ongoing disruptions in the operations of pubs and clubs and occupancy at hotels throughout Australia. Nonetheless, Foxtel witnessed a modest improvement in advertising trends in the month of July as live sports resumed across Australia and worldwide. Barring any disruptions, management stated that Foxtel will recognize about $55 million (A$78 million) of additional sports rights costs in fiscal 2021, which were deferred from fiscal 2020 due to the cancellation or postponement of live sports. Owing to cost-cutting endeavors, Foxtel anticipates overall costs for fiscal 2021 — net of the increase in sports rights costs — to be down year over year by at least $100 million (A$160 million). The company informed that broadcast churn was modestly higher in July compared with the prior year and the fourth quarter.
As far as Dow Jones segment is concerned, management expects adverse impacts on advertising and single-copy sales revenues. However, News Corporation stated that advertising trends improved modestly in the month of July. It further added that digital advertising showcased strength. It continued to see robust subscription trends in July with digital-only subscriptions for The Wall Street Journal up more than 25% year over year.
The company stated that the retail market for Book Publishing division has been hurt due to government restrictions worldwide. Nonetheless, management stated that online sales have been resilient with continued growth in e-books in July compared with the prior year.
With respect to News Media segment, management highlighted that it expects to continue to witness adverse impacts on advertising and single-copy sales revenues. Advertising revenues in July at the newspaper mastheads fell 25-30% in total compared with the prior year. Nonetheless, the company continued to see robust increase in digital subscribers in July compared with the prior year at the Australian mastheads and at The Times and Sunday Times.
How Have Estimates Been Moving Since Then?
Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions. The consensus estimate has shifted -41.67% due to these changes.
Currently, News Corp. has a strong Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
News Corp. has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.