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Why Is Discovery (DISCA) Down 7.3% Since Last Earnings Report?

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It has been about a month since the last earnings report for Discovery Communications (DISCA - Free Report) . Shares have lost about 7.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Discovery 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.

Discovery Q1 Benefits From Strong Top-line Growth

Discovery reported first-quarter 2019 adjusted earnings of 87 cents per share compared with 16 cents in the year-ago quarter. The figure beat the Zacks Consensus Estimate by 8 cents.

Revenues increased 17.3% year over year to $2.71 billion but lagged the consensus mark. The year-over-year growth was driven by strong advertising (52.3% of revenues) and distribution (45.2% of revenues) revenues.

Advertising revenues surged 39.8% year over year to $1.42 billion. Distribution revenues increased 16.5% from the year-ago quarter to $1.22 billion.

Other revenues were $69 million compared with $244 million reported in the year-ago quarter.
 
U.S. Networks (64.7% of revenues) revenues surged 49.2% from the year-ago quarter to $1.75 billion. Advertising and Distribution revenues jumped 63% and 35.6%, respectively.

Per Nielsen data, Discovery’s ID, HGTV, Food Network and TLC were the top four cable networks for “women 25-54” in the United States in the first quarter.

International Networks revenues (35.2% of revenues) decreased 13.3% year over year to $952 million. The year-ago quarter results had benefited from Olympics-related advertising, distribution and other revenues, which were absent in the reported quarter.

Quarter Highlights

During the first quarter, Discovery announced a 10-year global partnership with BBC for factual SVOD content. The company also inked a new distribution agreement in the United States with YouTube TV, adding to broad inclusion of virtual MVPD services.

Moreover, the company launched digital streaming video platform GOLFTV internationally. Discovery also announced a multi-platform media joint venture with Chip and Joanna Gaines that will rebrand DIY Network. The new brand is expected to be unveiled in summer 2020.
 
Further, Discovery bought a controlling interest in digital cycling platform Play Sports Group.

In the first quarter, adjusted operating income before depreciation & amortization (OIBDA) surged 63.5% from the year-ago quarter to $1.16 billion.

U.S. Networks adjusted OIBDA soared 62.7% from the year-ago quarter to $1.06 billion. International Networks adjusted OIBDA surged 59.9% from the year-ago quarter to $219 million.

Selling, general and administrative (SG&A) expenses increased 15% from the year-ago quarter to $618 million.

Operating income was $774 million compared with $204 in the year-ago quarter.

Balance Sheet

As of Mar 31, 2019, cash & cash equivalents were $745 million compared with $986 million as on Dec 31, 2018. Long-term debt was $14.96 billion, lower than $15.19 billion at the end of the previous quarter.

Free cash flow increased to $498 million, as cash flow from operations increased to $542 million. Capital expenditures of $44 million were lower than the year-ago quarter’s figure.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

Currently, Discovery has a great Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, Discovery has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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