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Discovery (DISCA) Q2 Earnings Miss Estimates, Revenues Up Y/Y

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Discovery (DISCA - Free Report) reported second-quarter 2019 adjusted earnings of 98 cents per share that missed the Zacks Consensus Estimate by a penny.

Adjusting for tax benefit worth $455 million or 64 cents per share and after-tax restructuring and other charges of $8 million or 1 cent per share, earnings were $1.61 per share, up almost 144% year over year.

Revenues increased 1.4% year over year to $2.89 billion and beat the consensus mark of $2.88 billion. The year-over-year growth was driven by an increase in advertising (56.1% of revenues) and distribution (41.8% of revenues) revenues.

Shares were up 3.8% in pre-market trading.

Top-Line Details

Advertising revenues increased 3.6% year over year to $1.62 billion. Distribution revenues increased 1.7% from the year-ago quarter to $1.21 billion.

Other revenues were $60 million compared with $96 million in the year-ago quarter.
 

Discovery, Inc. Price, Consensus and EPS Surprise

Discovery, Inc. Price, Consensus and EPS Surprise

Discovery, Inc. price-consensus-eps-surprise-chart | Discovery, Inc. Quote

U.S. Networks (64.6% of revenues) revenues increased 4.7% from the year-ago quarter to $1.86 billion. Advertising and Distribution revenues were up 5.8% and 5.2%, respectively.

Growth in advertising revenues was primarily driven by an increase in pricing and to a lesser extent, by inventory. Moreover, continued monetization of digital content offerings benefited the top line.

Distribution revenues were primarily driven by an increase in contractual affiliate rates and additional carriage on streaming platforms, partially offset by a decline in overall subscribers.

Per Nielsen, Discovery had the #1 most watch TV portfolio for “women 25-54” in the United States in the reported quarter.

International Networks revenues (35.4% of revenues) decreased 2.9% year over year to $1.02 billion. Advertising and Distribution revenues were down 1.5% and 2.6%, respectively.

However, at constant currency, International Networks revenues grew 3%, as advertising revenues increased 5% and distribution revenues 3% on a year-over-year basis.

Advertising revenues increased due to higher pricing in certain markets in Europe and to some extent due to the consolidation of the UKTV Lifestyle business and expanded digital content offerings.

Distribution revenues were driven by expansion in Latin America primarily due to contractual price increases and subscriber growth. The company also witnessed subscriber growth in certain European markets.

Quarter Highlights

During the second quarter, Discovery completed a record advertising upfront, which improved pricing and volumes across the portfolio.

In June 2019, Discovery and BBC dissolved their 50/50 joint venture, UKTV, a British multi-channel broadcaster. Following the closure, the company gained formal control of lifestyle channels — Really, Home and Good Food. BBC took full control of UKTV’s seven entertainment channels.

Further, the company launched nine additional networks on YouTube TV in the United States and signed a multi-year live and on-demand carriage agreement with fuboTV.

Operating Details

In the second quarter, selling, general and administrative (SG&A) expenses increased 3.2% from the year-ago quarter to $709 million.

Adjusted operating income before depreciation & amortization (OIBDA) increased 4.8% from the year-ago quarter to $1.28 billion.

U.S. Networks’ operating expenses decreased 8% year over year to $737 million, as cost of revenues decreased 10% and SG&A expenses 4%. The decrease in cost of revenues was primarily attributable to content synergies related to the integration of Scripps Networks. SG&A expenses declined due to lower personnel costs from restructuring and the integration of Scripps Networks.

International Networks’ operating expenses increased 3% to $734 million. Cost of revenues increased 4%, primarily attributable to higher expenses associated with expanded digital content offerings and to some extent due to the consolidation of the UKTV Lifestyle business.

SG&A expenses increased 16%, primarily due to higher professional service fees, technology costs and personnel expenses as a result of expanded digital content offerings.

U.S. Networks adjusted OIBDA increased 14.5% from the year-ago quarter to $1.13 billion. International Networks adjusted OIBDA declined 14.9% from the year-ago quarter to $286 million.

GAAP operating income surged 40.2% year over year to $911 million.

Balance Sheet

As of Jun 30, 2019, cash & cash equivalents were $1.32 billion compared with $745 million as on Mar 31, 2019.

Moreover, as of Jun 30, 2019, long-term debt was $14.82 billion, lower than $14.96 billion as of Mar 31, 2019.

Free cash flow was $596 million, up from $498 million reported in the previous quarter.

Zacks Rank & Stocks to Consider

Currently, Discovery carries a Zacks Rank #3 (Hold).

BrightView Holdings (BV - Free Report) , Cable One (CABO - Free Report) and Roku (ROKU - Free Report) are some better-ranked stocks in the broader consumer discretionary sector. All three stocks have a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

BrightView, Cable One and Roku are set to release quarterly results on Aug 7.

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