News Corporation (NWSA - Free Report) is slated to report fourth-quarter fiscal 2018 results on Aug 9. The company outperformed the Zacks Consensus Estimate in all the trailing four quarters by an average of 79.6%. In the last reported quarter, this diversified media conglomerate delivered a positive earnings surprise of 20%. Let’s see how things are shaping up prior to this announcement.
Which Way Are Top & Bottom-Line Estimates Headed?
The Zacks Consensus Estimate for the quarter under review stands at 6 cents, reflecting a year-over-year decline of 45.5%. We also note that the Zacks Consensus Estimate has gone down by a penny in the last 7 days. However, News Corporation has a remarkable history, at least in terms of the bottom line. The company’s third-quarter fiscal 2018 results marked the sixth consecutive quarter of earnings beat.
The Zacks Consensus Estimate for revenues of $2,311 million indicates an increase of 11.1% from the year-ago quarter. If all goes well, this may be the fourth straight quarter of top-line beat for the company. We note that total revenues of this New York-based company increased 6% in the last reported quarter.
Well, the obvious question that comes to mind is whether News Corporation will be able to sustain its positive earnings surprise streak in the fourth quarter of fiscal 2018. Though the past trend indicates a positive surprise, it will not be wise to jump to a conclusion without analyzing the factors at play.
News Corporation Price and EPS Surprise
Factors Influencing Q4
News Corporation is exposed to challenges stemming from the readers’ increased preference to access news online, mostly free. Advertising, which forms a major part of the company’s total revenues (approximately 35% of fiscal 2017 total revenue), fell 3% year over year during the third quarter of fiscal 2018. The decline stemmed from softness in the print advertising market, primarily in Australia and the United States, and lower revenues at News America Marketing. The decision to stop The Wall Street Journal’s international print editions also impacted the results.
Further, the company witnessed higher operating expenses as well as SG&A expenses in the third quarter that led to a decline in adjusted EBITDA by 17.5% to $179 million. Also, adjusted EBITDA margin contracted 240 basis points to 8.6%. If expenses continues to increase it may hurt the company’s bottom line.
Nevertheless, sturdy performance at the Digital Real Estate Services, Book Publishing and Cable Network Programming segments is benefitting the company. Notably, the Zacks Consensus Estimate of revenues for Book Publishing, Cable Network Programing, Digital Real Estate Services, and News and Information Services in fourth quarter of fiscal 2018 is pegged at $435 million, $146 million, $298 million and $1,286 million, up 6.9%, 4.3%, 18.7% and 0.4% year over year, respectively.
Apart from this, News Corporation remains poised on cost cutting and expanding digital offerings with greater emphasis on real estate services to mitigate the impact of sluggish print advertising demand. Additionally, the company entered into a licensing deal with Amazon to create an original television series based on The Lord of the Rings by JRR Tolkien, which is likely to be accretive in the fourth quarter. The company expects to generate more than $20 million additional revenues.
Also, the company is focused on enhancing digital real estate operations through acquisitions. These acquisitions have reduced the company’s dependency on traditional advertising and provide a steady revenue stream.
What Does the Zacks Model Say?
Our proven model does not conclusively show that News Corporation is likely to beat estimates this quarter. A stock needs to have both — a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
News Corporation has a Zacks Rank #4 (Sell) but an Earnings ESP of +5.56%, making surprise prediction difficult.
Stocks With Favorable Combination
Here are some better-ranked companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:
Twenty-First Century Fox, Inc. (FOXA - Free Report) has an Earnings ESP of +1.21% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
AMC Networks Inc. (AMCX - Free Report) has an Earnings ESP of +0.72% and a Zacks Rank of 3.
Discovery Communications, Inc. (DISCA - Free Report) has an Earnings ESP of +1.73% and a Zacks Rank of 3.
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