News Corp Earnings Surpass Estimates

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Despite soft advertising environment, Rupert Murdoch controlled diversified media conglomerate, News Corporation (NWSA) reported better-than-expected second-quarter fiscal 2014 results on the back of effective cost management. The publisher of The Wall Street Journal and the New York Post posted quarterly earnings of 31 cents a share that surpassed the Zacks Consensus Estimate of 21 cents but remained flat with the prior-year quarter.

Including one-time items, the company reported quarterly earnings of 26 cents a share, substantially down from $2.42 delivered in the year-ago quarter.

Though softness did persist across the company’s Australian newspaper, it witnessed a rise in digital subscriptions and website traffic as well as healthy revenue generation at REA, the online real estate company.

The company, which split from Twenty-First Century Fox, Inc. (FOXA) on Jun 28, 2013, said that total revenue for the quarter came in at $2,238 million, down 4% from the year-ago quarter but ahead of the Zacks Consensus Estimate of $2,228 million.

Total revenue of this Zacks Rank #4 (Sell) stock was adversely affected by decline in advertising revenue at the News and Information Services division and the sale of the Dow Jones Local Media Group. This was partly offset by the consolidation of FOX SPORTS Australia and sturdy performance across the Digital Real Estate Services and Book Publishing divisions.

Total advertising revenue dropped 7% to $1,080 million, while circulation and subscription revenue rose 1% to $661 million.

Segments Performance

We observe that revenue across News and Information Services segment fell 9% year over year to $1,612 million primarily due to waning advertising revenue, indicating a soft economic scenario in Australia and the sale of the Dow Jones Local Media Group. Australian newspapers revenue tumbled 17%. Adjusted segment EBITDA decreased 8% to $261 million.

Cable Network Programming segment revenue came in at $110 million, significantly higher than $53 million in the year-ago quarter, while EBITDA was $31 million, up 63% year over year. The strength witnessed reflects the consolidation of FOX SPORTS Australia since Nov 2012, attributable to the acquisition of Consolidated Media Holdings Ltd. (“CMH”), a media investment company that has its operations in Australia.

Revenue at Digital Real Estate Services segment soared 18% year over year to $103 million, whereas adjusted EBITDA jumped 33% to $61 million.

Book Publishing segment, which consists of HarperCollins Publishers, reported revenue of $391 million, up 4% from the prior-year period, reflecting robust performance in Children’s and General Books. This was partially offset by divestment of the Women of Faith live events business and discontinuation of the third party distribution business in the U.S. On the other hand, e-book sales surged 39%, contributing 17% of the revenue.

Adjusted EBITDA for News Corporation’s book publishing business, which competes with e-book devices sold by Amazon.com Inc. (AMZN) and Apple Inc. (AAPL), came in at $69 million, increasing 38% year over year.

The Other segment, which comprises Amplify, a digital education business, posted revenue of $22 million that plunged 31% from the previous-year quarter. The divestment of Australian digital businesses in fiscal 2013 and a fall in project-based consulting revenue impacted the results. Adjusted EBITDA for the segment was a loss of $85 million compared with a loss of $59 million in the prior period.

Other Financial Aspects

News Corporation ended the quarter with cash and cash equivalents of $2,908 million, amounts due to Twenty-First Century Fox of $83 million, and shareholders’ equity of $12,749 million, excluding non-controlling interest of $122 million.

Capital expenditures for the first-six month of fiscal 2014 were $147 million, while the company generated free cash flow of $217 million.

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