News Corp. Beats Estimates, Despite Scandals

| About: News Corporation (NWS)

Despite the global economic unrest and declining sheen in the stock market on account of the recent phone hacking scandal in the U.K. that resulted in the closure of the publication of News of the World and abstinence from acquiring the remaining 61% stake in the British Sky Broadcasting Group, News Corporation (NASDAQ:NWS) posted fourth-quarter 2011 financial results that beat Zacks' expectations.

Rupert Murdoch-controlled News Corporation’s quarterly earnings of 35 cents a share came ahead of the Zacks Consensus Estimate of 29 cents, and rose 6.1% from 33 cents earned in the year-ago quarter.

On a reported basis, including one-time items, News Corporation informed that quarterly earnings came in at 26 cents, down 21.2% from 33 cents delivered in the year-ago quarter due to the divestiture of Myspace and higher expenses.

News Corporation, a diversified media conglomerate, said that total revenue jumped 10.5% year over year to $8,962 million, reflecting growth across Cable Network Programming (up 14.5%), Filmed Entertainment (up 13.6%), Television (up 7%), Direct Broadcast Satellite Television (up 13.7%) and Publishing (up 10.6%). The Other segment’s revenue plunged 24.4%. Total revenue also handily beat the Zacks Consensus Estimate of $8,466 million.

Total segment operating income, excluding one-time items, soared 45.1% to $1,352 million during the quarter.

Another media conglomerate, Time Warner Inc. (NYSE:TWX), one of the competitors of News Corporation, posted second-quarter 2011 earnings of 60 cents a share that beat the Zacks Consensus Estimate of 56 cents, and jumped 20% from 50 cents earned in the prior-year quarter on the heels of higher advertising demand. Total revenue in the quarter grew 10% to $7,030 million, and surpassed the Zacks Consensus Estimate of $6,788 million.

Segment Discussion

Operating income at Cable Network Programming jumped 12.1% to $631 million due to growth in revenue, partially offset by a rise in programming expenses and the write-down of other assets. At the domestic cable channels, advertising and affiliate revenues grew 23% and 7%, respectively. At the international cable channels, advertising and affiliate revenues grew 20% and 30%, respectively.

Filmed Entertainment posted an operating income of $210 million up 53.3% from the prior-year quarter reflecting the success of Rio, which generated box office receipts of more than $475 million and the home entertainment performance of Black Swan and The Chronicles of Narnia: Voyage of the Dawn Treader. Twentieth Century Fox Television also contributed to the division’s strong results.

Television segment’s operating income more than doubled to $233 million from the year-ago quarter, reflecting a robust national advertising marketplace and rise in retransmission consent revenue. Lower general entertainment programming expenses also contributed to the growth.

Direct Broadcast Satellite Televisionor SKY Italia posted segment operating income of $145 million, up 49.5% from the year-ago quarter, on the back of reduced programming expenses due to the absence of FIFA World Cup costs this year, partly offset by a rise in costs related to the sustained rollout of premium services.

SKY Italia ended the quarter with a subscriber base of 4.97 million, representing an addition of about 57,000 subscribers during the quarter.

Publishing segment reported an operating income of $270 million, up 37.8% from the year-ago quarter. News Corporation hinted that the increase in operating income was due to the rise in advertising and circulation revenues at The Wall Street Journal and reduced costs at the integrated marketing services business.

The Other segment, posted an operating loss of $137 million, portraying an improvement of $37 million from the year-ago quarter. Management stated that lower Digital Media losses on account of reduced operating costs, offset the losses at Myspace, mainly resulting from a decline in search and advertising revenues.

Other Financial Details

News Corporation ended the quarter with cash and cash equivalents of $12,680 million, total borrowings of $15,495 million, and shareholders’ equity of $29,506 million, excluding non-controlling interests of $578 million.

News Corporation also announced a dividend of 9.5 cents a share up from 8.5 cents, to be paid on October 19, 2011 to shareholders of record as on September 14, 2011. On July 12, 2011, the company’s Board of Directors approved a share buyback program of $5 billion, and hinted that it will commence repurchasing shares after August 15.

Currently, we have a long-term Neutral rating on News Corporation. Moreover, the stock holds a Zacks #3 Rank, which translates into a short-term Hold recommendation, and correlates with our long-term view.