It has been about a month since the last earnings report for News Corp. (NWSA - Free Report) . Shares have lost about 0.8% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is News Corp. due for a breakout? 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 Q1 Earnings Meet Estimates, Fall Y/Y
News Corporation came out with first-quarter fiscal 2020 results, wherein the top line missed the Zacks Consensus Estimate, while the bottom line met the same. Notably, both revenues and earnings per share continued to decline year over year. Management highlighted that foreign currency headwinds, softness in Australian economy and property market, and absence of the net benefit related to the exit from the gaming partnership hurt the quarterly performance. Nonetheless, the company registered robust growth at Dow Jones and increased revenues at Move.
The company — which is in discussions about the sale of News America Marketing and reviewing the potential sale of Unruly — delivered adjusted earnings of 4 cents a share that came in line with the Zacks Consensus Estimate. However, earnings declined sharply from 17 cents reported in the year-ago period on account of dismal top-line performance. News Corporation reported total revenues of $2,340 million, down 7% from the year-ago quarter. Total revenues also fell short of the Zacks Consensus Estimate of $2,400 million, marking the third straight miss.
The year-over-year decline in revenues can be attributed to $84 million adverse impact of currency fluctuations, absence of the net benefit related to News UK’s exit from the gaming partnership with Tabcorp for Sun Bets, fall in print advertising revenues at the News and Information Services segment and decline in subscription revenues at Foxtel. Moreover, lower revenues at REA Group thanks to tough Australian housing market and at Book Publishing segment also hurt the top-line results. Excluding the impact of acquisitions, divestitures and foreign currency fluctuations, adjusted revenues of $2,408 million fell 4% year over year.
While advertising revenues dropped 8% to $608 million, circulation and subscription revenues decreased 4% to $995 million. Consumer revenues also declined 3% to $387 million, while revenues from real estate were down 4% to $218 million. Meanwhile, Other revenues fell nearly 34% to $132 million.
Total segment EBITDA was $221 million, reflecting a decline of 38% from the prior-year period. Further, adjusted total segment EBITDA plummeted 30% to $251 million.
Revenues from the News and Information Services segment declined 8% year over year to $1,149 million in the reported quarter. Foreign currency fluctuations negatively impacted the segment’s revenue by 3%. While revenues at Dow Jones grew 6%, it dropped 10% at News America Marketing. The metric declined 11% at News Corp Australia and 22% at News UK. Advertising revenues fell 8% year over year, owing to softness in the print advertising market, particularly in Australia, lower home delivered revenues and adverse foreign currency fluctuations. Advertising revenues at Dow Jones rose 2% during the quarter.
Circulation and subscription revenues inched up 1% owing to strong contribution from Dow Jones, which witnessed nearly 6% 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. Higher prices and rise in digital subscribers at other mastheads positively impacted the results. These were largely offset by fall in print volume in Australia and the U.K. and adverse foreign currency fluctuations. Digital revenues accounted for 34% of segment revenues compared with 33% in the year-ago period. The Wall Street Journal average daily digital subscribers in the three months ended Sep 30, 2019 were 1,854,000.
The Subscription Video Services segment’s revenues came in at $514 million, down 9% year over year on account of lower broadcast subscribers, alteration in subscriber package mix and adverse foreign currency fluctuations. This was partly mitigated by improved revenues from Foxtel’s OTT products, Kayo and Foxtel Now. Foxtel’s total closing subscribers reached roughly 3.065 million as of Sep 30, 2019, exhibiting an improvement of 6% from the last year on account of subscriber growth for Foxtel Now and the launch of Kayo Sports. This was partly offset by fall in broadcast subscribers. Broadcast subscriber churn was 14.4% in the quarter under review compared with 12.9% in the prior year due to a price increase in October last year and higher volume of churn from lower-value customers on expiring contracts. Meanwhile, Broadcast ARPU rose 2%.
The Book Publishing segment reported revenues of $405 million, down 3% from the prior-year period. This year-over-year decline can be attributed to adverse foreign currency fluctuations and lower sales of Girl, Wash Your Face by Rachel Hollis, The Hate U Give by Angie Thomas and The Subtle Art of Not Giving a F*ck by Mark Manson. Digital sales, which constituted 22% of Consumer revenues, decreased 5% from the prior-year quarter.
Revenues at the Digital Real Estate Services segment fell 7% year over year to $272 million due to adverse foreign currency fluctuations. Revenues fell 14% to $149 million at REA Group but increased 4% to $123 million at Move.
Other Financial Aspects
News Corp ended the quarter with cash and cash equivalents of $1,441 million, borrowings of $707 million and shareholders’ equity of $8,714 million, excluding non-controlling interest of $1,115 million. Capital expenditures of $117 million were incurred during the quarter.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -31.25% due to these changes.
At this time, News Corp. has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. 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. It's no surprise News Corp. has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.