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News Corporation (NWSA) Misses Q3 Earnings by a Penny

Rupert Murdoch-controlled News Corporation NWSA continued with its dismal performance for the third straight quarter in fiscal 2016. After posting negative earnings surprises of 28.6% and 4.8% in the first and second quarters, the company’s third-quarter earnings fell short of the Zacks Consensus Estimate by 20%. Foreign currency headwinds, soft advertising demand and lower revenues at its Book Publishing and Cable Network Programming divisions weighed upon the company’s performance in the quarter. However, expanded digital offerings, along with greater emphasis on real estate businesses, provided some cushion to the stock.

The company recorded adjusted earnings of 4 cents a share that missed the Zacks Consensus Estimate by a penny and declined substantially from 9 cents earned in the year-ago quarter. Including pre-tax charge of $280 million related to the lawsuit and discontinued operations, the publisher of The Wall Street Journal and New York Post reported quarterly loss of 26 cents a share as against earnings of 4 cents delivered in the year-ago period.

News Corporation, which split from Twenty-First Century Fox, Inc. FOXA, stated that its total revenue for the reported quarter was $1,891 million, down 7% from the year-ago quarter and below the Zacks Consensus Estimate of $1,942 million. Adverse foreign currency fluctuations hurt total revenue by $72 million.

Adjusted revenues (excluding the impact of acquisitions, divestitures and foreign currency fluctuations) dropped 5% year over year to $1,942 million.

Total advertising revenues for this Zacks Rank #4 (Sell) company declined 10% year over year to $816 million, while circulation and subscription revenues dropped 4% to $615 million. Consumer revenues fell 11% to $343 million.

News Corporation is in a transitional phase, looking to diversify its revenue streams, along with expanding its digital properties via product launches and accretive acquisitions. Management expects performance to improve in the final quarter of fiscal 2016 on the back of digital real estate business, easing of foreign currency headwinds and cost containment efforts.

News Corporation, which has a 61.6% stake in the digital real estate services company, REA, recently acquired the remaining stake in iProperty Group Limited, which has online property advertising operations in Malaysia, Indonesia, Hong Kong, Macau and Singapore, together with investments in the Philippines and India.

The company also acquired video advertisement technology company, Unruly Holdings Ltd. The buyout of Unruly offers News Corporation significant opportunity to expand in the online video advertising market by using its skills in identifying the social and viral penetration of advertisements.

News Corporation, which offers e-books for devices sold by Amazon.com Inc. AMZN and Apple Inc. AAPL, had earlier raised its stake in APN News and Media Limited, an Australian media company, to 14.99%; acquired BigDecisions.Com, the provider of financial decision-making tools; and invested in PropTiger.com, to tap the burgeoning residential real estate market in India.

Segmental Performance

Revenues from the News and Information Services segment fell 9% year over year to $1,231 million, primarily due to a 15% decline in advertising revenues and a 4% decrease in circulation and subscription revenues. The segment’s results were hurt by the adverse impact of foreign currency fluctuations, softness in the print advertising market, and a fall in free standing insert revenues at News America Marketing, partly offset by growth registered across digital advertising revenues. Adjusted segment EBITDA declined 11% to $101 million.

The Book Publishing segment, which consists of HarperCollins Publishers, reported revenues of $358 million, down 11% from the prior-year period on account of a fall in e-book sales, foreign currency headwinds, and a decline in revenues from American Sniper and the Divergent series. Digital sales constituted 21% of consumer revenues. Adjusted EBITDA for News Corporation’s book publishing business came in at $36 million, down 36% year over year.

Revenues at the Digital Real Estate Services segment went up 14% year over year to $194 million on the back of sustained growth witnessed across REA Group Limited and Move, whereas adjusted EBITDA increased 23% to $53 million.

The Cable Network Programming segment’s revenues came in at $107 million, down 8% from the year-ago quarter. Adjusted EBITDA was $36 million, up 33% year over year. Management highlighted that foreign currency headwinds hurt revenues by $9 million.

Other Financial Aspects

News Corporation ended the quarter with cash and cash equivalents of $1,972 million, borrowings of $369 million, and shareholders’ equity of $11,646 million, excluding non-controlling interest of $199 million.

Capital expenditures of $180 million were incurred during the first nine months of fiscal 2016, while the company generated free cash flow of $362 million.

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