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21st Century Fox (FOXA) Q3 Earnings in Line, Revenues Top

Twenty-First Century Fox, Inc. FOXA reported earnings of 47 cents a share in the third quarter of fiscal 2016, in line with the Zacks Consensus Estimate. However, the quarterly earnings increased 11.9% year over year. Notably, this is the second consecutive quarter in which the company’s earnings met our expectations.

Including one-time items, earnings came in at 44 cents a share compared with 47 cents in the year-ago quarter.

On the other hand, total revenue of $7,228 million surpassed the Zacks Consensus Estimate of $7,178 million and also increased 5.7% year over year. The better-than-expected revenues were driven by increase in affiliate and advertising revenues at both the Cable Network Programming as well as Television segments. However, the upside was partially offset by decline in television production revenues at the Filmed Entertainment segment. The top-line growth also limited by $204 million or 3% negative impact of foreign currency exchange rate.

Segment wise, Cable Network Programming revenues grew 9.8% to $3,941 million driven by robust affiliate growth revenues as well as low double-digit increase in advertising revenues. However, the revenue growth was partially offset by higher expenses, primarily due to increased entertainment programming as well as marketing costs at FX Networks.

Filmed Entertainment revenues dipped 2.8% to $2,321 million, whereas Television segment net revenues were up 5% to $1,299 million, both on a year-over-year basis.         

The company’s adjusted total segment operating income before depreciation and amortization (OIBDA) increased 12.2% year over year to $1,881 million in the fiscal quarter. Higher OBIDA at the Cable Network Programming drove the upside.

Detailed Discussion

OIBDA at Cable Network Programming increased 11.5% to $1,375 million on the back of 10% growth in affiliate fees and higher advertising revenues. The improvement, however, was somewhat offset by a 9% increase in expenses. The rise in expenses was mostly due to increase in entertainment programming as well as marketing costs at FX Networks and surge in political coverage costs at Fox news. Foreign currency fluctuations affected the segment’s OIBDA growth by 5%, primarily in Latin America and India.

OIBDA contribution from domestic channels increased 7% owing to sturdy OIBDA growth at FX Networks and FS1.

Further, at the domestic cable channels, affiliate revenues grew 7% due to continued growth across FS1, and FX Networks. Domestic advertising revenues surged 17% on robust growth at Fox News and also due to higher number of National Basketball Association matches aired in the reported quarter.

On the other hand, OIBDA contribution from International cable channels soared 67% on solid growth at Star India channels due to increase in affiliate and advertising revenues. Affiliate revenues were up 6% due to growth in local currency at STAR as well as the Fox International Channels (“FIC”). However, the increase was negated by 14% forex impact.

Filmed Entertainment’s OIBDA increased 23% to $407 million in the quarter primarily due to increase in contributions from the film studio. Growth at film studio was mostly due to worldwide success of Deadpool, which collected $760 million to date. Intensified currency headwinds impacted the segment’s OIBDA by 13%.

Television segment’s OIBDA decreased 11.3% to $125 million due to increase in contractual sports programming costs at the FOX Broadcast Network, which overshadowed higher revenues generated at the segment.

Other Financial Details

Twenty-First Century Fox ended the quarter with cash and cash equivalents of $4,993 million. Total borrowings came in at $19,745 million and shareholders’ equity, excluding non-controlling interest of $1,079 million, came in at $14,471 million.

On Aug 4, 2015, the company announced a new share repurchase authorization of $5 billion with a one-year time frame. In reported quarter, Twenty-First Century Fox bought back 28 million shares for $744 million.

At present, Twenty-First Century Fox carries a Zacks Rank #3 (Hold). Some better-ranked media stocks include Cumulus Media Inc. CMLS, IMAX Corporation IMAX and World Wrestling Entertainment Inc. WWE. Cumulus Media and IMAX sport a Zacks Rank #1 (Strong Buy), while World Wrestling Entertainment holds a Zacks Rank #2 (Buy).

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