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Why Is Fox (FOXA) Down 2.5% Since Last Earnings Report?

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A month has gone by since the last earnings report for Fox (FOXA). Shares have lost about 2.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Fox due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Fox Q3 Earnings Top Estimates, Revenues Decline Y/Y

Fox Corporation reported third-quarter fiscal 2021 adjusted earnings of 88 cents, which beat the Zacks Consensus Estimate by 51.7%. The figure decreased 5.4% year over year.

Revenues were down 6.5% year over year to $3.2 billion. The figure surpassed the consensus mark by 3.1%.

Affiliate fees (53.5% of revenues) rose 10.3% to $1.7 billion. Meanwhile, advertising (37.3% of revenues) revenues decreased 23.7% to $1.19 billion primarily due to the absence of the prior-year broadcast of Super Bowl LIV. Other revenues (9.3% of revenues) declined 4.2% from the year-ago quarter’s levels to $298 million.

Fox became a standalone, publicly-traded company on Mar 21, 2019, following the merger of Disney and Twenty-First Century Fox, Inc.

Standalone Fox’s portfolio comprises Twenty-First Century Fox’s news, sports and broadcast businesses. These include FOX News, FOX Business, FOX Broadcasting Company (the FOX Network), FOX Sports, FOX Television Stations Group, sports cable networks like FS1, FS2, FOX Deportes and Big Ten Network as well as certain other assets.

Top-Line Details

Cable Network Programming (45.8% of revenues) revenues improved 0.3% year over year to $1.47 billion. Advertising revenues declined 6.9%, as continued strength in linear pricing at FOX News Media was more than offset by a slower news cycle in the quarter under review.

Meanwhile, revenues from Affiliate fees increased 6.2% year over year driven by contractual price increases, including the impact of distribution agreement renewals.

Other revenues declined 23.6% on a year-over-year basis, primarily due to lower sports sublicensing revenues and the absence of pay-per-view boxing in the quarter under review.

Television (52.7% of revenues) revenues decreased 12% from the year-ago quarter’s figure to $1.9 billion. Advertising revenues decreased 27.7% as the impact of the consolidation of Tubi, the addition of the rotating NFL Divisional playoff game and the timing of the NFL’s Week 17 doubleheader in the fiscal third quarter were more than offset by the absence of the prior-year broadcast of Super Bowl LIV.

Meanwhile, Affiliate fees and other revenues increased 17.7% and 20.6%, respectively. Affiliate revenues were driven by increases in fees from third-party FOX affiliates and higher average rates per subscriber at the company’s owned and operated television stations. Increase in other revenues was primarily driven by higher content revenues at FOX Entertainment and Bento Box.

Operating Details

In third-quarter fiscal 2021, operating expenses decreased 8.5% year over year to $1.8 billion. As a percentage of revenues, operating expenses contracted 130 basis points (bps) to 58.6%.

Selling, general & administrative (SG&A) expenses decreased 5.8% year over year to $437 million. As a percentage of revenues, SG&A expenses expanded 10 bps to 13.6%.

Total adjusted EBITDA decreased 2.3% year over year to $899 million. EBITDA margin expanded 120 bps to 28%.

Cable Network Programming EBITDA improved 7.3% to $850 million. EBITDA margin grew 380 bps to 57.8%.

Television EBITDA declined 39.7% to $135 million. EBITDA margin contracted 370 bps to 8%.

Balance Sheet

As of Mar 31, 2021, Fox had $5.7 billion in cash and cash equivalents compared with $4.5 billion as of Dec 31, 2020.

Long-term debt as of Mar 31, 2021 was $7.20 billion compared with $7.94 billion as of Dec 31, 2020.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month. The consensus estimate has shifted -12.26% due to these changes.

VGM Scores

At this time, Fox has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Fox has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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