Earnings: News Corp Comes In Low, Takes Huge Charge
Analysts expected 19 cents per share in earnings. They got 12 cents, and that’s not taking into account an $8.4b writedown. So much for expectations.
Like other major media companies (Time Warner (PDF), and Disney (article) to name a pair), it’s currently a struggle to balance ad inventory against reduced spending. In the face of this, News Corporation reported weak earnings Thursday.
In a statement Rupert Murdoch explained saying the “downturn is more severe and likely longer lasting than previously thought.”
Revenue for the company’s fiscal second quarter came in at $7.87b, down 8.4% and below Wall Street’s expected draw of $8.35 to $8.38b. Factoring in the pre-tax onetime charge related to goodwill and intangible assets, the net loss was $6.4b, or $2.45 a share compared to net income of $832m (27 cents a share) for the same period last year.
The result was News Corps. First loss in more than three years.
Looking at the results by segment the punishment was noticeable in most areas but the worst hit (excepting the cyclical film business and the still immature digital business (Fox Interactive Media) characterized in the “other” category) were Television and Direct Broadcast Satellite TV. The two were off 93% and 84% year over year (see attached table for more) without taking into account adjustments to the results.
Adjusted, in the TV category, adjusted operating income was $18m compared to $245m a year ago. Fox TV stations were down 44%. Local ad markets were off approximately 19%. (Year over year results, the company noted, are slightly skewed because of the sale of 8 stations in July 2008. Last year, these stations contributed $78m in revenue and $23m in earnings. This year, they weren’t there to add to the total).
Looking at movies, the filmed entertainment sector was off 72%, but the heavy decrease in operating income is largely a factor of the differing title slates from year to year. Last year the company had the Simpson’s movie and both Die Hard and Fantastic Four sequels contributing. This year, the drawing power wasn’t as high.
In Newspapers, adjusted operating income was $179m, down from $196m. Among single brands, the Wall Street Journal is performing well. The paper’s digital network, which includes WSJ.com, MarketWatch.com, BARRONS.com, and AllThingsD.com, has increased visitor traffic by 76%. According to Murdoch, it is the only major newspaper growing its individual page circulation year-over-year (up 2.4%). The Weekend Journal also became the country’s best selling weekend newspaper based on individually paid sales according to latest research.
The adjusted operating income contributions of $59m from Dow Jones were “offset by lower advertising revenue in the U.K. and Australia.” The U.K ad revenue was off about 10% and the Australian group was down about 4%.
At Fox Interactive Media (included in the “other” category), revenues were down 3% to $226m. Adjusted operating losses were $38m. The company attributed this “primarily” to reduced subscription revenue at IGN and increased costs from growing usage at MySpace and other properties. Search and ad revenues were largely flat.
The bright spot for the quarter was Cable Network Programming. Operating income was up 27% thanks to increased affiliate and advertising revenue. The year old Big 10 network is showing a profit and Fox News is also doing well. (Note: like TV, comparative results are skewed do to the sale of assets. Three RSN’s sold last year contributed $51m in revenue and $23m in operating profit to year ago results).
On the balance sheet, the company closed the quarter with debt of $13.3b and cash of $3.6b. Year over year, the net debt position has improved by $900m
Ever candid, Murdoch, the 77 year old kingpin of the company made a point of saying that while times are bad (“the worst global economics crisis we witnessed since NewsCorp was established more than 50 years ago”), the company sees great opportunity in its wellness plan. It will just take time.
“[News Corp has] never bought into the pervasive fear that all is lost when the business hits a recession; that advertising is gone, never to return; that consumers won’t pay for entertainment,” he said in the analyst call, “Historically, every time we have seen a recession, mild or major, we have endured this panic and come out better. And every a time the economy rebounds, advertising comes back, usually stronger than before. I am not being flippant. I recognize that we may never return to record levels, but we do believe we can recapture a large percentage of the advertising that does return. … when this recession ends, we will be better positioned than anyone else because we have been aggressively building market share in these businesses and we will make no compromise in that sector.”
Straight to the point, “This downturn will eventually end. And News Corporation will emerge better positioned, better capitalized, a better business than our peers.”
The big question is when that will happen. Looking ahead to the future, News Corp isn’t expecting it soon. In guidance, the company reduced its forecasts. In November, the company had set the benchmark at low to mid teen percentage growth for its fiscal year. Now, they’re calling for a 30% decline.
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