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Discovery (DISCA) Q3 Earnings Beat Estimates, Revenues Up Y/Y

Zacks Equity Research

Discovery DISCA reported third-quarter 2019 adjusted earnings of 87 cents per share that beat the Zacks Consensus Estimate by 4.8% and increased 10.1% year over year.

Revenues increased 3.3% year over year to $2.68 billion and beat the consensus mark by 0.1%. Excluding foreign exchange impact, revenues increased 5%.

The year-over-year growth was driven by an increase in advertising (52.8% of revenues) and distribution (44.8% of revenues) revenues.

Top-Line Details

Advertising revenues grew 3.5% year over year to $1.41 billion. Distribution revenues increased 4.3% from the year-ago quarter to $1.20 billion.

Other revenues were $64 million, down 14.7% from the year-ago quarter.
 

Discovery, Inc. Price, Consensus and EPS Surprise

 

U.S. Networks (64.4% of revenues) revenues rose 3% from the year-ago quarter to $1.73 billion. Advertising and distribution revenues were up 2.8% and 5.7%, respectively.

The advertising growth was driven by increases in pricing and continued monetization of digital content offerings and inventory. The growth in distribution revenues was driven by increased contractual affiliate rates and additional carriage on streaming platforms.

Per Nielsen, Discovery had the #1 most watch TV portfolio for “women 25-54” in the United States for the past six months.

Moreover, TLC was the #1 ad-supported cable network in primetime among “women 25-54” and “women 18-49,” with delivery up 16% and 10%, respectively.

Notably, Discovery launched Food Network Kitchen in collaboration with Amazon in the United States.

International Networks revenues (35.5% of revenues) rose 3.7% year over year to $950 million. Advertising and distribution revenues were up 5.3% and 2.4%, respectively.

However, excluding foreign exchange impact, International Networks revenues grew 9%, as advertising revenues increased 10% and distribution revenues 8% on a year-over-year basis.

The advertising growth was driven by contribution from the UKTV Lifestyle Business, expansion of digital content offerings and increased prices in certain European markets.

Moreover, the growth in distribution revenues was driven by contractual price increases and new channel launches in the Latin America region. Additionally, higher digital licensing revenues and growth in Europe owing to increases in pricing and monetization of digital content offerings drove the top line in the reported quarter.

Operating Details

In the third quarter, selling, general and administrative (SG&A) expenses decreased 1% from the year-ago quarter to $660 million.

Adjusted operating income before depreciation & amortization (OIBDA) increased 6.2% from the year-ago quarter to $1.13 billion. Excluding foreign exchange impact, OIBDA grew 9%.

U.S. Networks adjusted OIBDA rose 11.5% from the year-ago quarter to $1 billion.

However, International Networks adjusted OIBDA declined 6.7% from the year-ago quarter to $237 million. Excluding foreign exchange impact, adjusted OIBDA increased 5%.

GAAP operating income surged 67.8% year over year to $619 million.

Balance Sheet

As of Sep 30, 2019, cash & cash equivalents were $813 million compared with $1.32 billion as of Jun 30, 2019.

Moreover, as of Sep 30, long-term debt was $14.76 billion, lower than $14.82 billion as of Jun 30.

Free cash flow was $884 million, up from $596 million reported in the previous quarter.

Discovery repurchased nearly 12 million shares for $300 million in the reported quarter.

Zacks Rank & Stocks to Consider

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

Some better-ranked stocks in the broader consumer discretionary sector include Cumulus Media CMLS, Entercom Communications ETM and Liberty Media Corp FWONK. All three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

While both Cumulus and Liberty Media are set to report quarterly results on Nov 11, Entercom is scheduled to report on Nov 8.

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