It has been about a month since the last earnings report for Twenty-First Century Fox (FOXA - Free Report) . Shares have added about 3.5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Twenty-First Century 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’s Q1 Results Benefit From Increase in Affiliate & Advertising Revenues
Twenty-First Century Fox reported first-quarter fiscal 2019 adjusted earnings of 52 cents per share, which increased 6.1% on a year-over-year basis. However, the figure missed the Zacks Consensus Estimate by a penny.
Revenues of $7.18 billion increased 2.5% from the year-ago quarter. However, the figure missed the Zacks Consensus Estimate of $7.25 billion.
The top-line growth was primarily attributable to increasing affiliate and advertising revenues from the Cable Network Programming and Television segments, which was offset by lower theatrical revenues at the Filmed Entertainment segment. Notably, foreign currency had a negative impact of about $110 million on revenue growth.
Segment wise, Cable Network Programming revenues (60.6% of total revenues) increased 3.6% to about $4.4 billion. Television segment net revenues (17.8%) increased 19.8% on a year-over-year basis to about $1.3 billion. However, Filmed Entertainment revenues (25.3%) declined 7.5% to $1.8 billion.
On the basis of components, affiliate revenues (48.7% of total revenues) increased 8% from the year-ago quarter to about $3.5 billion. Advertising revenues (24.7%) increased 9.2% year over year to about $1.8 billion. Other revenues (1.9%) increased 12.1% to $139 million. However, Content revenues (24.7%) declined 12.3% year over year to about $1.8 billion.
The Cable Network Programming segment gained from higher affiliate and advertising revenue growth, partially offset by increase in programming and contractual expenses. Increase in contractual rates of all domestic cable brands led to a 9% year-over-year increase in domestic affiliate revenues. Domestic advertising revenues increased 7% year over year primarily due to higher pricing at Fox News.
However, international affiliate revenues declined 1% due to unfavorable impact of a stronger U.S. dollar, which was offset by local currency growth at FNG International and STAR. International advertising revenues decreased 8% due to unfavorable impact of a stronger U.S. dollar and “lower local currency advertising revenue at FNG International more than offset local currency advertising growth at STAR.”
Filmed Entertainment revenues declined due to lower theatrical revenues from a “lower volume and mix of films released” in first-quarter fiscal 2019, which was offset by higher SVOD revenues.
The Television segment gained from higher advertising revenues and retransmission consent revenues. Advertising revenues increased 22% year over year to $799 million due to increased number of sports broadcast and higher political advertising revenues generated from the mid-term U.S. elections. Moreover, Retransmission consent revenues increased 19% year over year due to increase in contractual rate. This was offset by increase in sports programming costs by 17%.
The company’s total segment operating income before depreciation and amortization (OIBDA) came in at $1.87 billion, up 4.6% year over year on the back of higher contributions of the Television, Filmed Entertainment and Cable Network Programming segments.
As a result, OIBDA margin of 26.1% expanded 50 basis points (bps) on a year-over-year basis.
OIBDA at Cable Network Programming rose 2% to $1.54 billion on higher affiliate and advertising revenues. The increase was partially offset by 5% rise in expenses. Higher programming costs of FIFA World Cup at both FS1 and FOX Networks Group International and contractual increases at the Regional Sports Networks (RSNs) contributed increase in expenses.
OIBDA contribution from domestic market rose 6% year over year due to increase in contributions from FOX News and RSNs. OIBDA contribution from International cable channels declined 24% year over year due to unfavorable impact of a stronger U.S. dollar.
Filmed Entertainment’s OIBDA increased to $277 million up 8% from the year-ago quarter. The increase was due to higher contribution from the “television production studio led by higher SVOD licensing of animated product.”
Television segment’s OIBDA surged 38% year over year to $168 million.
As of Sep 30, 2018, cash & cash equivalents were $7.08 billion compared with $7.62 billion as of Jun 30, 2018.
Cash flow from operations was $580 million in the quarter compared with $748 million in the year ago quarter.
Disney’s offer of $71.3 billion for Twentieth Century Fox Film and Television studios and certain assets of the cable and international television businesses were recently approved by the European Commission on Nov 6. However, Disney had to divest channels like History and Lifetime in Europe to avoid competition concerns, per Reuters.
Prior to this, Disney received the approval of the United States Justice Department on Jun 27. Moreover, Twenty-First Century Fox announced that on Oct 9 it sold its Sky stake (39%) to Comcast for total proceeds of $15.1 billion.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -9.59% due to these changes.
At this time, Twenty-First Century Fox has a poor Growth Score of F, a grade with the same score on the momentum front. Charting a somewhat similar path, 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 F. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Twenty-First Century Fox has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.