Rupert Murdoch-controlled News Corporation (NWSA - Free Report) delivered seventh straight quarter of positive earnings surprise, when it reported fourth-quarter fiscal 2018 results. Also, revenues surpassed the Zacks Consensus Estimate for the fourth successive quarter. Results gained from sturdy performance at the Digital Real Estate Services and Book Publishing segments as well as the newly-created Subscription Video Services segment. The consolidation of Foxtel boosted the company’s performance as well.
Year to date, this Zacks Rank #4 (Sell) company has lost 5.3% against the industry’s 21.5% rally.
In April this year, News Corp and Telstra combined their respective 50% stake in Foxtel with the former’s 100% stake in FOX SPORTS Australia to a new company – the Transaction – also known as new Foxtel. On completion, the publisher of The Wall Street Journal owns a 65% interest in the new Foxtel while Telstra holds the balance 35% stake. Notably, News Corp consolidated Foxtel in fourth-quarter fiscal 2018.
News Corp delivered adjusted earnings of 8 cents a share, which outpaced the Zacks Consensus Estimate by a couple of cents but declined 27.3% from the year-ago quarter.
Including one-time items, the company incurred quarterly loss of 64 cents per share compared with a loss of 74 cents in the prior-year period. The downside can be primarily attributed to the transaction, resulting from the write-off of the FOX SPORTS Australia coupled with increased tax expenses.
News Corp, which split from Twenty-First Century Fox, Inc. (FOXA - Free Report) , reported total quarterly revenues of $2,693 million, up 29.5% from the year-ago quarter. The top line also outpaced the Zacks Consensus Estimate of $2,311 million. The upside was driven by solid Foxtel’s results, persistent momentum in the Book Publishing and Digital Real Estate Services segments along with gains from currency tailwinds. However, the improvement was somewhat offset by decline in print advertising revenues at the News and Information Services division. Excluding the impact of acquisitions, foreign currency fluctuations and divestitures, adjusted revenues of $2,185 million improved 5% year over year.
While advertising revenues declined 2% to $740 million, circulation and subscription revenues increased 5% to $1,074 million. Consumer revenues also rose 13.8% to $444 million while revenues from real estate improved 31.6% to $225 million. Meanwhile, Other revenues were up 43.8% to $210 million.
Total segment EBITDA was $312 million for the quarter under review, reflecting an improvement of 45% from the prior-year period. Further, adjusted total Segment EBITDA grew 13% to $248 million.
Revenues from the News and Information Services segment inched up 1% over year to $1,294 million in the fiscal fourth quarter. At News UK and Dow Jones, the metric was up 4% and 3%, respectively. However, revenues decreased a respective 2% and 3% at News America Marketing and News Corp Australia. Further, the segment’s adjusted revenues dipped 1% from the year-ago quarter number.
Advertising revenues fell 2% year over year due to a moderate fall in comparison to the year-ago quarter rate. Softness in the print advertising market and the decision to stop The Wall Street Journal’s international print editions also impacted the results. These were somewhat mitigated by improvement in digital advertising revenues at News Corp Australia and News UK as well as growth in advertising revenues at Wireless Group. Foreign currency fluctuations also acted as a tailwind. The rate of decline in advertising revenues has decelerated from 3% reported in the third quarter.
Circulation and subscription revenues grew 5% on account of strong contribution from Dow Jones’ consistent increase in digital subscriber at The Wall Street Journal along with sturdy growth at its professional information business. Notably, Dow Jones witnessed nearly 9% growth in the circulation revenues. Rise in cover and subscription prices, and favorable currency impact also aided revenue growth, partly offset by fall in print volumes.
In the quarter under review, digital revenues accounted for 30% of segment revenues compared with 26% in the comparable quarter last year. Adjusted segment EBITDA decreased 9% to $94 million.
The Book Publishing segment’s revenues totaled $490 million, up 20% from the prior-year period. Digital sales, which constituted 20% of Consumer revenues, rose 12% from the prior-year quarter owing to increase in downloadable audio book sales. The segment’s adjusted revenues were up 19% as well. Adjusted Segment EBITDA was $71 million compared with $39 million in the year-ago period.
Revenues at the Digital Real Estate Services segment advanced 19% year over year to $299 million on the back of sustained growth witnessed across REA Group (up 27% to $172 million) and Move (up 11% to $120 million). Further, the segment’s adjusted revenues were up 12%. Also, adjusted Segment EBITDA surged 10% to $96 million.
The Subscription Video Services segment’s revenues grew $470 million to $610 million, mainly on account of the addition of Foxtel. Further, Segment EBITDA increased $73 million to $97 million in the reported quarter. Also, the Segment EBITDA had $12 million of expenses related to the Transaction. Excluding the impact of currency fluctuations, acquisitions and divestitures, adjusted revenues and adjusted Segment EBITDA grew 6% and 38%, respectively.
On a pro-forma basis reflecting the Transaction, the segment’s revenues declined 5% year over year due to lower subscription revenues at new Foxtel on subscriber mix as well as fall in advertising revenues. These were somewhat offset by gains from currency tailwinds. Also, pro forma Segment EBITDA plunged 39% mainly attributable to fall in revenues, rise in programming costs reflecting higher National Rugby League and domestic football league rights costs along with higher transition costs.
At the end of fiscal 2018, new Foxtel’s total closing subscribers were roughly 2.8 million higher than the last year, courtesy of the launch of Foxtel Now. Moreover, cable and satellite residential churn was 12.5% in the reported quarter compared with 13.3% in the year-ago period. Broadcast residential ARPU dropped 3% in the same period.
Other Financial Aspects
News Corp ended fiscal 2018 with cash and cash equivalents of $2,034 million, borrowings of $1,490 million and shareholders’ equity of $9,291 million, excluding non-controlling interest of $1,186 million.
The company incurred capital expenditures of $364 million (including $60 million related to Foxtel) in fiscal 2018, while its free cash flow totaled $249 million. Further, Foxtel’s capital expenditures summed $285 million in the fiscal year. In fiscal 2019, it expects the spending for the Foxtel to be up by at least $50 million.
Going into fiscal 2019, News Corp remains on track to boost higher penetration of digital paid subscription driven by new digital advertising solutions and cost initiatives, especially in Australia and at News UK. Also, it expects to launch the latest OTT products, 4K, the next generation of the IQ Box as well as manage its significant broadcast base at subscription video services.
Further, the company remains impressed with its Book Publishing segment’s performance and continues to expand its foreign language penetration. At digital real estate services, it is likely to witness sturdy revenue growth at the REA and Move and this division is expected to drive the company’s overall performance.
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