A month has gone by since the last earnings report for News Corp. (NWSA). Shares have added about 0.7% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is News Corp. due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
News Corp Tops Q2 Earnings Estimates on Strong Sales
News Corporation delivered the ninth straight quarter of positive earnings surprise when it reported second-quarter fiscal 2019 results. Moreover, revenues surpassed the Zacks Consensus Estimate. Results gained from sturdy performance of Digital Real Estate Services and Book Publishing segments as well as the consolidation of Foxtel.
News Corporation delivered adjusted earnings of 18 cents a share, which topped the Zacks Consensus Estimate of 16 cents but declined 25% from 24 cents recorded in the year-ago quarter on account of higher operating and interest expenses.
News Corporation reported total quarterly revenues of $2,627 million, up 20.5% from the year-ago quarter. It also surpassed the Zacks Consensus Estimate of $2,599 million. The upside can be attributed to the consolidation of Foxtel’s results, and persistent momentum in Book Publishing and Digital Real Estate Services segments. This was partly offset by a decline in print advertising revenues from the News and Information Services division. Excluding the impact of acquisitions, divestitures and foreign currency fluctuations, adjusted revenues of $2,236 million improved 2.9% year over year.
While advertising revenues were nearly flat at $718 million, circulation and subscription revenues surged 61.5% to $1,029 million. Consumer revenues also rose 5.5% to $478 million while revenues from real estate were up 11.7% to $248 million. Meanwhile, Other revenues improved nearly 2% to $154 million.
Total segment EBITDA was $370 million, reflecting an improvement of 12.8% from the prior-year period. Further, adjusted total segment EBITDA grew 1.8% to $338 million.
Revenues from the News and Information Services segment dipped 1% year over year to $1,257 million in the reported quarter. Revenues for News UK dropped 10% while for Dow Jones it increased 4%. News UK revenues included adverse impacts of lack of revenues from Sun Bets as News UK exited from the partnership in the first quarter of fiscal 2019. Moreover, revenues decreased 7% and 5% at News America Marketing and News Corp Australia, respectively. The segment’s adjusted revenues dipped 1% from the year-ago quarter.
Advertising revenues fell 5% year over year, owing to the softness in the print advertising market and decline in News America Marketing revenues. This was partly offset by decent rise in digital advertising revenues. Foreign currency fluctuations also acted as a headwind. Advertising revenues at Dow Jones were comparable with the last year due to strength in digital advertising revenues, partly negated by soft print advertising.
Circulation and subscription revenues inched up 1% on account of strong contribution from Dow Jones — which witnessed nearly 7% growth in the circulation revenues due to persistent increase in digital paid subscriber at The Wall Street Journal and sturdy growth in its Risk & Compliance products. Rise in cover and subscription price also supported revenue growth. These were partly offset by lower newsstand volume at News UK and adverse foreign currency rates.
Digital revenues accounted for 32% of segment revenues compared with 29% in the year-ago period. However, adjusted segment EBITDA declined 13%.
The Subscription Video Services segment’s revenues grew $442 million to $562 million, primarily on account of the addition of Foxtel. Adjusted revenues rose 8% while adjusted EBITDA dropped 3%. Pro-forma segment revenues, including the effects of the aforementioned Sun Bets transaction, declined 11%, owing to lower broadcast subscribers and alteration in subscriber package mix. This was partly compensated by improved revenues from Foxtel Now.
New Foxtel’s total closing subscribers reached roughly 2.9 million as of Dec 31, 2018, making an improvement from the last year on account of subscriber growth for Foxtel Now, the inclusion of commercial subscribers of FOX SPORTS Australia since the beginning of first-quarter fiscal 2019 and the launch of Kayo Sports. This was partly offset by fall in broadcast subscribers. Broadcast subscriber churn was 15.6% in the quarter under review compared with 14.5% in the prior year, mainly due to a price increase in October. Meanwhile, Broadcast ARPU fell 3%.
Pro-forma segment EBITDA declined 46%, driven by lower revenues, higher programming costs for Cricket Australia and National Rugby League rights, increased production costs for new Fox Cricket channel, and elevated marketing costs for the launch of Kayo Sports. Adjusted segment EBITDA was down 3%.
The Book Publishing segment reported revenues of $496 million, up 6% from the prior-year period. Growth was backed by strong sales in general books and Christian publishing. Digital sales, which constituted 17% of Consumer revenues, increased 12% from the prior-year quarter, owing to increase in downloadable audiobook sales. The segment’s adjusted revenues improved 7% while adjusted EBITDA increased 13%.
Revenues at the Digital Real Estate Services segment advanced 7% year over year to $311 million on the back of sustained growth witnessed across REA Group (up 6% to $189 million) and Move (up 11% to $122 million). Further, the segment’s adjusted revenues were up 10% while adjusted EBITDA grew 12%. Notably, the Digital Real Estate Services segment’s revenues more than tripled and EBITDA more than doubled since the creation of new News Corp in 2013.
Other Financial Aspects
News Corporation ended the quarter with cash and cash equivalents of $1,618 million, borrowings of $936 million and shareholders’ equity of $9,264 million, excluding non-controlling interest of $1,170 million. Capital expenditure of $264 million was incurred in the first six months of fiscal 2019 while the company generated free cash flow of $26 million.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -46.15% due to these changes.
Currently, News Corp. has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. 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 C. 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. Notably, News Corp. has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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