It has been about a month since the last earnings report for News Corp. (NWSA). Shares have added about 8.3% in that time frame, outperforming 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 drivers.
News Corporation Q4 Earnings Top Estimates, Fall Y/Y
News Corporation’s fourth-quarter fiscal 2019 results marked the 11th straight quarter of positive earnings surprise. The company delivered adjusted earnings of 7 cents a share, which surpassed the Zacks Consensus Estimate of 2 cents. However, the bottom line declined approximately 13% from the year-ago period on account of dismal top-line performance.
News Corporation — which recently announced a strategic review of News America Marketing, including a sale of the business — reported total quarterly revenues of $2,466 million that declined 8% from the year-ago quarter. Total revenues also fell short of the Zacks Consensus Estimate of $2,490 million, marking the second straight miss.
The year-over-year decline in revenues can be attributed to $105 million adverse impact of currency fluctuations, lower revenues at the Book Publishing segment, fall in broadcast subscriber revenues at the Subscription Video Services segment, decline in advertising revenues at the News and Information Services segment and $18 million of lower revenues as a result of the adoption of the new revenue recognition standard. Excluding the impact of acquisitions, divestitures and foreign currency fluctuations, adjusted revenues of $2,558 million fell 5% year over year.
While advertising revenues fell 9% to $686 million, circulation and subscription revenues decreased 5% to $1,016 million. Consumer revenues also declined 10% to $398 million, while revenues from real estate were down 4% to $215 million. Meanwhile, Other revenues fell nearly 23% to $151 million.
Total segment EBITDA was $269 million, reflecting a decline of 14% from the prior-year period. Further, adjusted total segment EBITDA fell 8% to $302 million.
Revenues from the News and Information Services segment declined 5% year over year to $1,227 million in the reported quarter. Foreign currency fluctuations negatively impacted the segment’s revenue by 3%. While revenues at Dow Jones grew 4%, it dropped 6% at News America Marketing. The metric declined 7% at News Corp Australia and 10% at News UK. Advertising revenues fell 8% year over year, owing to softness in the print advertising market, lower home delivered revenues and adverse foreign currency fluctuations. Advertising revenues at Dow Jones were flat during the quarter.
Circulation and subscription revenues remained almost flat in spite of strong contribution from Dow Jones — which witnessed nearly 7% growth in the circulation revenues owing to increase in digital paid subscriber and subscription price increases at The Wall Street Journal, and sturdy growth in its Risk & Compliance products. Rise in cover price also supported revenue growth. These were partly offset by lower print volume in Australia and the U.K. and adverse foreign currency fluctuations. Digital revenues accounted for 33% of segment revenues compared with 30% in the year-ago period. The Wall Street Journal average daily digital subscribers in the three months ended June 30, 2019 were 1,818,000.
The Subscription Video Services segment’s revenues came in at $536 million, down 12% year over year on account of lower broadcast subscribers, alteration in subscriber package mix and adverse foreign currency fluctuations. This was partly mitigated by improved revenues from Foxtel Now and Kayo Sports. Foxtel’s total closing subscribers reached roughly 3.144 million as of Jun 30, 2019, exhibiting 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 14.7% in the quarter under review compared with 12.5% in the prior year due to a price increase in October last year and higher volume of churn from lower-value customers. Meanwhile, Broadcast ARPU fell 1%.
The Book Publishing segment reported revenues of $419 million, down 14% from the prior-year period. This year-over-year decline can be attributed to the absence of $28 million of revenues from The Lord of the Rings trilogy sublicensing agreement in the year-ago period and fall in sales of Magnolia Table compared with the prior-year quarter. Adoption of the new revenue recognition standard also hurt the segment revenue to an extent. This was partly mitigated by the success of new releases such as Everything is F*cked and The World’s Worst Teachers. Digital sales, which constituted 22% of Consumer revenues, increased 1% from the prior-year quarter owing to increase in downloadable audiobook sales.
Revenues at the Digital Real Estate Services segment fell 5% year over year to $283 million due to adverse foreign currency fluctuations and disposal of Diakrit in July 2018. Revenues fell 6% to $161 million at REA Group but increased 3% to $123 million at Move.
Other Financial Aspects
News Corp ended the quarter with cash and cash equivalents of $1,643 million, borrowings of $1,004 million and shareholders’ equity of $9,144 million, excluding non-controlling interest of $1,167 million. Capital expenditures of $572 million were incurred in fiscal 2019, while the company generated free cash flow of $213 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -50.64% due to these changes.
At this time, News Corp. has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Following the exact same course, 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 B. 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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