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Why Is News Corp. (NWSA) Down 11.8% Since Last Earnings Report?

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A month has gone by since the last earnings report for News Corp. (NWSA - Free Report) . Shares have lost about 11.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is News Corp. due for a breakout? 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 catalysts.

News Corp Q1 Earnings Beat, Revenues Lag Estimates

Rupert Murdoch-controlled News Corporation delivered eighth straight quarter of positive earnings surprise, when it reported first-quarter fiscal 2019 results. However, revenues missed the Zacks Consensus Estimate after four successive quarters of beat. Nevertheless, both the top and bottom lines improved year over year. Results gained from sturdy performance at the Digital Real Estate Services and Book Publishing segments as well as the consolidation of Foxtel.

Q1 Highlights

News Corporation delivered adjusted earnings of 17 cents a share that outpaced the Zacks Consensus Estimate of 6 cents and more than doubled from 7 cents recorded in the year-ago quarter.

News Corp reported total quarterly revenues of $2,524 million, up 23% from the year-ago quarter. However, top line fell short of the Zacks Consensus Estimate of $2,553 million. The upside can be attributed to the consolidation of Foxtel’s results, persistent momentum in the Book Publishing and Digital Real Estate Services segments. This was partly offset by decline in print advertising revenues at the News and Information Services division. Excluding the impact of acquisitions, divestitures and foreign currency fluctuations, adjusted revenues of $2,137 million improved 4% year over year.

While advertising revenues fell 3% to $664 million, circulation and subscription revenues surged 59% to $1,034 million. Consumer revenues also rose 4% to $400 million, while revenues from real estate were up 12% to $227 million. Meanwhile, Other revenues improved 46% to $199 million.

Total segment EBITDA was $358 million for the quarter under review, reflecting an improvement of 44% from the prior-year period. Further, adjusted total Segment EBITDA grew 37% to $283 million.

Segment Details

Revenues from the News and Information Services segment inched up 1% over year to $1,248 million in the reported quarter. At News UK and Dow Jones, revenues increased 12% and 3%, respectively. However, at News Corp Australia and News America Marketing, the metric decreased 7% and 6%, respectively. The segment’s adjusted revenues grew 3% from the year-ago quarter.

Advertising revenues fell 7% year over year owing to the softness in the print advertising market primarily in Australia and the U.K. and lower home delivered revenues. This was partly offset by a decent rise in digital advertising revenues. Foreign currency fluctuations also acted as a headwind. The rate of decline in advertising revenues has accelerated from 2% reported in the preceding quarter.

Circulation and subscription revenues grew 2% on account of strong contribution from Dow Jones — which witnessed nearly 7% growth in the circulation revenues — persistent increase in digital subscriber at The Wall Street Journal along with sturdy growth in its Risk & Compliance products. Rise in cover and subscription price also aided revenue growth. These were partly offset by lower newsstand volume at News UK and adverse foreign currency fluctuations.
In the quarter under review, digital revenues accounted for 33% of segment revenues compared with 27% in the year-ago period. Adjusted segment EBITDA soared 59%.

The Subscription Video Services segment’s revenues grew $420 million to $565 million, mainly on account of the addition of Foxtel. Adjusted revenues fell 1%, while adjusted EBITDA grew 4%.

At the end of the quarter, new Foxtel’s total closing subscribers came in at roughly 2.9 million, higher than last year on account of Foxtel Now subscriber growth and the inclusion of commercial subscribers of FOX SPORTS Australia since the beginning of the quarter under review. This was partly offset by fall in broadcast subscribers. Broadcast subscriber churn was 12.9% in the quarter versus 12.7% in the prior year, while ARPU fell 6%.

The Book Publishing segment reported revenues of $418 million, up 4% from the prior-year period. Digital sales, which constituted 22% of Consumer revenues, rose 12% from the prior-year quarter owing to increase in downloadable audiobook sales. The segment’s adjusted revenues rose 5% in the quarter, while adjusted EBITDA jumped 42%.

Revenues at the Digital Real Estate Services segment advanced 8% year over year to $293 million on the back of sustained growth witnessed across REA Group (up 9% to $173 million) and Move (up 10% to $118 million). Further, the segment’s adjusted revenues were up 12%, while adjusted EBITDA surged 16%.

Other Financial Aspects

News Corp ended the quarter with cash and cash equivalents of $1,886 million, borrowings of $1,186 million and shareholders’ equity of $9,261 million, excluding non-controlling interest of $1,169 million. Capital expenditures of $133 million were incurred during the quarter, while the company generated negative free cash flow of $21 million.

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.

VGM Scores

Currently, News Corp. has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. 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.

Outlook

News Corp. has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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