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Discovery (DISCA) Posts Earnings in Q4, Revenues Rise Y/Y

Zacks Equity Research

Discovery DISCA reported fourth-quarter 2018 earnings of 38 cents per share compared with a loss of $1.99 in the year-ago quarter. Excluding the impact of amortization of acquisition-related intangible assets net of tax, adjusted earnings were 74 cents per share.

Moreover, adjusted earnings, excluding $62 million (or 8 cents per share) of after-tax restructuring and other charges, were 82 cents per share.

The Zacks Consensus Estimate for fourth-quarter earnings was pegged at 82 cents.

Revenues surged 50.7% year over year to $2.81 billion. Excluding the impact of foreign currency and the Scripps Networks Interactive, The Enthusiast Network and the Oprah Winfrey Network transactions (collectively called “Transactions”), and foreign currency fluctuations, revenues decreased 2%.

On a pro forma combined basis (if the “Transactions” had occurred on Jan 1, 2017), excluding the impact of foreign currency fluctuations, revenues declined 1% from the year-ago quarter.
 

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Top-Line Details

Distribution revenues (40.9% of revenues) increased 30.4% from the year-ago quarter to $1.15 billion. Advertising revenues (56%) surged 79.7% to $1.57 billion. Other revenues were $86 million compared with $107 million reported in the year-ago quarter.

On a pro forma combined basis (if the “Transactions” had occurred on Jan 1, 2017), excluding the impact of foreign currency fluctuations, Distribution and Advertising revenues increased 1% and 2%, respectively. Other revenues plunged 41% year over year.

U.S. Networks (61.3% of revenues) surged 93% from the year-ago quarter to $1.72 billion. Excluding the impact of “Transactions”, revenues inched up 1%.

On a pro forma combined basis, U.S. Networks' revenues grew 2%. Pro forma advertising revenues increased 3%, primarily driven by continued monetization of digital content offerings and an increase in pricing, partially offset by negative impact of audience declines on the company’s linear networks.

Pro forma distribution revenues increased 1%, primarily due to increases in contractual affiliate rates, partially offset by a decline in overall subscribers.

On a pro forma combined basis, subscribers to Discovery’s fully distributed networks were flat year over year. Total portfolio subscribers in December 2018 were 4% lower than that in December 2017.

International Networks’ revenues (38.6% of revenues) increased 16.9% year over year to $1.08 billion. Excluding the impact of the acquisition of Scripps and currency effects, segment revenues were flat.

On a pro forma combined basis, excluding the impact of foreign currency fluctuations, international networks' revenues remained unchanged year over year.

Pro forma distribution revenue growth was primarily driven by increases in Europe, mostly due to higher pricing and subscriber increases in Latin America, partially offset by pricing declines in Asia. Pro forma advertising revenues were flat, as increases in Europe, mostly due to higher pricing, were offset by viewership declines in Latin America.

Operating Details

In the fourth quarter, adjusted operating income before depreciation & amortization (OIBDA) surged 86.2% from the year-ago quarter to $1.18 billion.

Excluding the impact of the “Transactions” and foreign currency fluctuations, adjusted OIBDA increased 5%. U.S. Networks grew 6%, while international networks rallied 13%.

On a pro forma combined basis, excluding the impact of foreign currency, adjusted OIBDA increased 16%. U.S. Networks’ adjusted OIBDA grew 17%, while international networks’ adjusted OIBDA rose 15%.

Selling, general and administrative (SG&A) expenses soared 40.6% from the year-ago quarter to $679 million. On a pro forma combined basis, SG&A declined 5.8% year over year.

Balance Sheet

As of Dec 31, 2018, cash & cash equivalents were $986 million compared with $531 million as of Sep 30, 2018.

Long-term debt was $15.19 billion, lower than $15.83 billion at the end of the previous quarter.

Free cash flow increased to $888 million as cash flow from operations increased to $929 million, while capital expenditures of $41 million were slightly higher compared with the year-ago quarter’s figure, primarily due to the integration of Scripps Networks.

Zacks Rank & Stocks to Consider

Currently, Discovery carries a Zacks Rank #3 (Hold).

Charter Communications CHTR, NTN Buzztime NTN and TEGNA TGNA are better-ranked stocks in the same industry. All three have a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth rate for Charter, NTN and TEGNA is 38%, 20% and 10%, respectively.

 

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