A month has gone by since the last earnings report for News Corp. (NWSA - Free Report) . Shares have added about 2.5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is News Corp. 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.
News Corporation Q3 Earnings Beat Estimates, Fall Y/Y
News Corporation delivered the 10th straight quarter of positive earnings surprise when it reported third-quarter fiscal 2019 results. The company delivered adjusted earnings of 4 cents a share against the Zacks Consensus Estimate of a loss of 1 cent. Sturdy performance across Book Publishing and Subscription Video Services segments contributed to the results.
However, the bottom line declined 33.3% from the year-ago period on account of increased operating expenses, rise in SG&A expenses and higher interest expense. Even, impressive top-line performance failed to act as a savior. News Corp, which split from Twenty-First Century Fox, Inc. (FOXA), reported total quarterly revenues of $2,457 million, up 17% from the year-ago quarter. However, it fell short of the Zacks Consensus Estimate of $2,496 million.
The top-line growth can be attributed to the consolidation of Foxtel’s results, and persistent momentum in Book Publishing segment. This was partly offset by decline in print advertising revenues at the News and Information Services division, and adverse foreign currency fluctuations. Excluding the impact of acquisitions, divestitures and foreign currency fluctuations, adjusted revenues of $2,113 million improved 2% year over year.
While advertising revenues fell 5% to $670 million, circulation and subscription revenues surged 56% to $1,025 million. Consumer revenues also rose 6% to $403 million while revenues from real estate were up 5% to $218 million. Meanwhile, Other revenues dropped nearly 1% to $141 million. Total segment EBITDA was $247 million, reflecting an improvement of 36% from the prior-year period. Further, adjusted total segment EBITDA fell 4% to $178 million.
Revenues from the News and Information Services segment dipped 5% year over year to $1,224 million in the reported quarter. Foreign currency fluctuations negatively impacted the segment’s revenue by 4%. While revenues at Dow Jones grew 1%, it dropped 8% at both News UK and News America Marketing. The metric declined 7% at News Corp Australia. Adjusted revenues for the segment fell 1% from the year-ago quarter, while adjusted EBITDA declined 15%. Advertising revenues fell 9% year over year, owing to softness in the print advertising market, lower home delivered revenues and adverse foreign currency fluctuations. Advertising revenues at Dow Jones decreased 8%.
Circulation and subscription revenues remained almost flat in spite of strong contribution from Dow Jones — which witnessed nearly 7% growth in the circulation revenues due to increase in digital paid subscriber and subscription price increases at The Wall Street Journal, and sturdy growth in its Risk & Compliance products. Rise in cover price also supported revenue growth. These were partly offset by lower print volume in Australia and the U.K. and adverse foreign currency fluctuations. Digital revenues accounted for 31% of segment revenues compared with 29% in the year-ago period. Digital-only subscribers for The Wall Street Journal surged 19% to approximately 1.8 million.
The Subscription Video Services segment’s revenues came in at $539 million, up from $129 million, primarily on account of the addition of Foxtel. While adjusted revenues rose 4%, adjusted EBITDA sharply declined 88%. Pro-forma segment revenues, reflecting the effects of the combination of Foxtel and FOX SPORTS Australia, dropped 13%, owing to lower broadcast subscribers, alteration in subscriber package mix and adverse foreign currency fluctuations. This was partly mitigated by improved revenues from Foxtel Now and Kayo Sports.
New Foxtel’s total closing subscribers reached roughly 2.896 million as of Mar 31, 2019, exhibiting an improvement from the last year on account of subscriber growth for Foxtel Now, the inclusion of commercial subscribers of FOX SPORTS Australia since the beginning of first-quarter fiscal 2019 and the launch of Kayo Sports. This was partly offset by fall in broadcast subscribers. Broadcast subscriber churn was 17.7% in the quarter under review compared with 15.3% in the prior year, mainly due to a price increase in October last year. Meanwhile, Broadcast ARPU fell 1%.
The Book Publishing segment reported revenues of $421 million, up 6% from the prior-year period. Growth was backed by strong sales in Christian publishing and solid contribution from HarperCollins’ U.K. business. However, adoption of the new revenue recognition standard hurt the segment revenue to an extent. Digital sales, which constituted 21% of Consumer revenues, increased 5% from the prior-year quarter, due to increase in downloadable audiobook sales. The segment’s adjusted revenues improved 8%, while adjusted EBITDA increased 29%.
Revenues at the Digital Real Estate Services segment fell 3% year over year to $272 million. Revenues fell 4% to $151 million at REA Group but increased 5% to $121 million at Move. Adverse foreign currency fluctuations also hurt the segment’s revenues. Further, the segment’s adjusted revenues were up 3%, while adjusted EBITDA grew 9%.
Other Financial Aspects
News Corp ended the quarter with cash and cash equivalents of $1,648 million, borrowings of $868 million and shareholders’ equity of $9,289 million, excluding non-controlling interest of $1,169 million. Capital expenditures of $417 million were incurred in the first nine months of fiscal 2019, while the company generated free cash flow of $149 million.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -21.43% due to these changes.
At this time, News Corp. has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 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.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, News Corp. has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.