News Corp's Strong Earnings Portend Continued Appreciation Prior To Spin-Off

| About: News Corporation (NWSA)

On Tuesday, November 6, News Corp. (NASDAQ:NWSA), the media conglomerate run by billionaire Rupert Murdoch, reported profit above average Wall Street analyst estimates for its fiscal first-quarter, or the third-quarter of 2012. News Corp's net income increased substantially, to $2.23 billion or 94 cents a share, from $738 million or 28 cents in the same quarter year earlier.

Excluding certain one-time items, per-share profit came in at $0.43 cents and well above average estimates for $0.38. Net income benefited from the sale of a 49 percent investment in NDS Group to Cisco Systems (NASDAQ:CSCO) for about $1.9 billion, generating a $1.4 billion gain for News Corp.

Mr. Murdoch commented that the company was led by "double-digit growth in our channels business and the global success of our film and television content." The company's film division produced $400 million in profit during the quarter and its television division made $156 million.

News Corp. reported total quarterly revenue of $8.14 billion, an increase of $177 million or two percent from the same quarter a year ago, fueled by 16 percent growth from Twentieth Century Fox studio and broadcast-TV operations, the Company's Cable Network Programming segment, with eight percent advertising growth from its U.S. cable channels.

The strength of the cable networks comes not only from the revenue it generates from advertising, but also through its substantial affiliate fees. Operating income from the company's cable networks such as FX and Fox News increased 23 percent to $953 million.

News Corp. reported declines from its Direct Broadcast Satellite Television and Publishing segments. News Corp's publishing business is scheduled to be spun-off in 2013. The company has appreciated by about 40 percent within 2012, with a substantial portion of those gains fueled by the June announcement of the spin-off plan, as well as the share repurchase plans.

News Corp's publishing division, which is home to well known papers such as the Wall Street Journal and the Sun, has been in a state of decline as the industry continues to adapt to an increasingly digital and paperless age. The break-up is largely seen as a way to de-tether the company's high growth entertainment operations from the declining publishing operations.

The publishing unit sustained a 48 percent decrease in earnings to $57 million. Nonetheless, it is also quite possible that the company's strong publishing names will continue existing for a long time, and eventually again grow in digital form. Moreover, it is possible that the market's preference for the entertainment side will result in the publishing business becoming undervalued. Of course, such is yet to be seen. Further, the company has not yet named a CEO for the publishing spin-off.

Going forward, it appears News Corp. will continue to see revenue growth from its cable operations, and continued strength from its film division. Further, given these strong results and the pending splitting of the business a dividend increase or special dividend appears of growing likelihood.

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