It has been about a month since the last earnings report for Twenty-First Century Fox . Shares have added about 2.2% 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 its most recent earnings report in order to get a better handle on the important catalysts.
Fox Q2 Earnings Top, Revenues Lag
Twenty-First Century Fox delivered second-quarter fiscal 2019 adjusted earnings of 37 cents per share, beating the Zacks Consensus Estimate by 7 cents. However, the figure decreased 11.9% on a year-over-year basis owing to lack of contribution from stake in Sky following its sale to Comcast.
Revenues of $8.49 billion increased 5.7% from the year-ago quarter. However, the figure missed the Zacks Consensus Estimate of $8.58 billion.
The top-line growth can primarily be attributed to increasing affiliate revenues from the Cable Network Programming, and growth in affiliate and advertising revenues in the Television segments, offset by lower home entertainment revenues at the Filmed Entertainment segment. Notably, foreign currency had a negative impact of about $195 million on revenue growth.
Segment wise, Cable Network Programming revenues (53.7% of total revenues) increased 3.6% to about $4.56 billion. Television segment net revenues (25.3%) increased 18.9% on a year-over-year basis to about $2.15 billion. However, Filmed Entertainment revenues (25.4%) declined 3.9% to $2.16 billion.
On the basis of components, affiliate revenues (41% of total revenues) increased 7.1% from the year-ago quarter to $3.48 billion. Advertising revenues (31.7%) increased 8.1% year over year to $2.69 billion. Other revenues (2.4%) increased 34.9% to $201 million. However, Content revenues (24.9%) declined 1% year over year to $2.12 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 year-over-year increase of 8% in domestic affiliate revenues. Domestic advertising revenues increased 6% year over year primarily due to higher pricing at Fox News.
However, international affiliate revenues declined 4% owing 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 9% on account of 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 syndication revenues at television production studio and lower home entertainment revenues from film studio.
The Television segment gained from higher advertising and affiliate revenues. Advertising revenues increased 15% year over year due to increased number of sports broadcast and higher political advertising revenues generated from the mid-term U.S. elections. Increase in contractual retransmission consent fee and higher content revenues from FOX Broadcast Network’s on-demand streaming service led to year-over-year increase of 21% in affiliate revenues.
The company’s total segment operating income before depreciation and amortization (OIBDA) came in at $1.57 billion, up 8.8% year over year on the back of higher contributions of the Filmed Entertainment and Cable Network Programming segments, partially offset by lower contribution at Television segment. Notably, foreign currency had a negative impact of about $94 million on OIBDA growth.
OIBDA as percentage of revenues expanded 50 basis points (bps) on a year-over-year basis to 18.4%.
OIBDA at Cable Network Programming rose 7% to $1.45 billion on higher affiliate revenues (4%). The increase was partially offset by 2% rise in expenses. Higher sports rights costs at both FS1 and the Regional Sports Networks (RSNs), and increase in FX entertainment costs resulted in increased expenses. This was modestly offset by lower cricket rights costs at STAR.
OIBDA contribution from domestic market rose 10% year over year due to increase in contributions from FOX News and RSNs. OIBDA contribution from International cable channels declined 8% year over year owing to unfavorable impact of a stronger U.S. dollar, partially offset by local currency growth at both FNG International and STAR.
Filmed Entertainment’s OIBDA increased to $193 million up 47% from the year-ago quarter. The increase can be attributed to higher contribution from film studios due to the global release of Bohemian Rhapsody, lower theatrical costs on account of less number of films released in second-quarter fiscal 2019 and strong performance of The Greatest Showman across home entertainment and pay television. This was partially offset by “lower domestic syndication contribution and higher new series deficits.”
Notably, Bohemian Rhapsody, the biopic about Queen lead singer Freddie Mercury, won the award for best picture - drama this year’s Golden Globes. Moreover, Rami Malek, portraying the legendary singer, won the trophy for best actor in a motion picture - drama.
Television segment reported OIBDA loss of $22 million, declining $78 million from the year-ago quarter. Growth in affiliate, advertising and content revenues (19%) was more than offset by increase in expenses (24%). The rise in expenses was due to higher sports programming costs on account of the inaugural season of Thursday Night Football, offset by lower expenses of entertainment programming.
Operating and selling, general and administrative expenses increased 4.8% year over year to $6.94 billion.
Balance Sheet and Cash Flow
As of Dec 31, 2018, cash & cash equivalents were $21.28 billion compared with $7.08 billion as of Sep 30, 2018 due to cash inflow from Sky stake sold to Comcast.
Cash flow from operations was $557 million for six months ended Dec 31, 2018, compared with $504 million for six months ended Dec 31, 2017.
During the reported quarter, Fox sold its 39% stake in Sky to Comcast for about $15.1 billion due to which it had a pre-tax gain of $10.8 billion.
Disney’s acquisition of Twentieth Century Fox Film and Television studios and certain assets of the cable and international television businesses are expected to close in the first half of calendar year 2019. The acquisition is subject to few regulatory approvals and “receipt of certain tax opinions with respect to the treatment of the transaction under U.S. and Australian tax laws.”
Earlier, the acquisition was approved by the United States Justice Department on Jun 27, 2018 and European Commission on Nov 6, 2018.
Prior to the close of acquisition, Twenty-First Century Fox will separate few business units including FOX Television Stations, FOX Business, FOX Broadcasting Company, FS1, FS2, FOX News and Big Ten Network to create a new entity called Fox Corporation.
Notably, on Jan 7, 2019, Twenty-First Century Fox announced that it has filed registration statement with the U.S. Securities and Exchange Commission (SEC) to create Fox Corporation.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
Currently, Twenty-First Century Fox has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Following the exact same course, 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 trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise Twenty-First Century Fox has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.