This summary is based on the second quarter fiscal 2008 earnings call conducted by News Corp. (NWS) on February 4, 2008.
Management:
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Executive Vice President, Global Marketing and Corporate Affairs: Gary Ginsberg
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Chief Financial Officer, Senior Executive Vice President, Director: David F. DeVoe
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Chairman of the Board and Chief Executive Officer: Rupert Murdoch
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President, Chief Operating Officer and Director: Peter Chernin
Key Investors Issues
- Net income marginally increased to $832 million or 27 cents a share.
- Revenues increased 9.5% from $7.8 billion in 2006 to $8.6 billion.
- Completed previously announced acquisition of all of the outstanding shares of Dow
Jones & Company.
Half Year Results:
- Revenues rose by 13.8% to $15.7 billion.
- Net income decreased 6% from $1.7 billion in 2006 to $1.6 billion.
- Debt increased by 9% to $13.2 billion.
Second Quarter Highlights
Net income marginally increased to $832 million or 27 cents a share, from $822 million or 26 cents a share in the prior year, despite absorbing $100 million in incremental losses related to growth initiatives.
- Income growth was also led by strong performances at the television cable SKY Italia and Fox Interactive businesses.
- Consolidated operating income of $1.4 billion was up 24% versus the $1.1 billion reported a year ago, primarily driven by double-digit percentage increases at nearly every operating segment and a $74 million improvement in the Direct Broadcast Satellite segment.
- Net losses from affiliates were $50 million versus net earnings of $249 million in the same period a year ago following lower contributions from BSkyB due to the write-down of its ITV investment.
Revenues increased 9.5% from $7.8 billion in 2006 to $8.6 billion on strong revenue performance from Cable Networking and Newspapers.
- The firm raised the annual dividends on the class B shares by 2 cents to 12 cents a share.
- This equalizes the dividend on the class B shares to that of the class A shares, which is consistent with the requirements of the reincorporation to the United States back in late 2004.
Segment Highlights:
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Film’s operating income was $403 million, down from a year ago as the year-ago results were the highest ever for the film segment, reflecting the DVD and theatrical successes of blockbuster releases as Ice Age 2 and X-Men 3.
- Results reflect strong home entertainment releases, including The Simpsons Movie and the most recent Die Hard film as well as the pay TV availability of previous hits.
- Additionally, the firm expects good results for the rest of the year as the yet-to-come from the theatrical release in the quarter of Alvin and the Chipmunks and Juno.
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Television’s operating profit more than doubled above the year-ago levels despite station earnings, which were down compared to last year, primarily from a 90% reduction in political advertising.
- Strong growth largely reflects substantial improvement at My Network TV, from lower programming cost and strong profit growth at the Fox Broadcasting Network from increased ratings and ad pricing for both r entertainment and sports programming.
- The writers’ strike did not have any material impact on results and the firm expects political revenues to improve as towards the November election.
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Cable networks realized a 23% improvement in operating profit to $337 million, despite the inclusion of total start-up losses of $50 million for the Big 10 and Fox Business channel launches.
- The largest year-over-year gains were from the Fox News channel, reflecting new affiliate deals and higher advertising sales.
- The RSNs as well reflects affiliate rate increases and subscriber increases, led by the Latin American and European channels.
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SKY Italia had local currency revenues up 12% and operating income of $62 million, a $74 million improvement from the last year.
- The financial improvements are driven largely by net subscriber additions of 400,000 over the last 12 months, resulting in 4.43 million subscribers at the end of the quarter.
- SKY acquired 189,000 net new subscribers, down slightly from year-ago levels and has added 233,000 net new subscribers. and this is 16% ahead of the net new additions in the same six-month period a year ago.
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Newspapers and information service reported operating income of $196 million, up 15% over the second quarter from a year ago.
- The segment previously referred to as newspapers, now includes all of the Dow Jones businesses.
- The Australian newspapers, reported a 14% increase in operating profit with advertising revenues up 7% in local currency terms, driven by ad growth across most key categories and by higher classified advertising and employment advertising.
- In the United Kingdom, underlying advertising circulation revenue trends, they are relatively flat compared with a year ago although earnings are down.
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HarperCollins reported operating income of $67 million, an increase of $13 million versus the same period a year ago, which included charges due to the bankruptcy filing of a major distributor.
- The 24% growth included strong sales of The Daring Book for Girls by Andrea J. Buchanan and Miriam Peskowitz, The Dangerous Book for Boys by Conn and Hal Iggulden and Deceptively Delicious by Jessica Seinfeld.
- HarperCollins had 40 books on The New York Times bestseller list, including 5 titles that reached the #1 spot.
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Other segment generated an operating profit of $23 million, up $22 million from the prior year due to the strong growth at Fox Interactive Media, offset in part by start-up losses related to the Eastern European TV initiatives.
- Fox Interactive Media (FIM’) total revenue of $233 million was up 87% from a year ago, due to search and advertising revenue growth at MySpace and $62 million from the search deal with Google.
- Ad revenues of FIM increased 43%, while operating profit was $47 million, as compared to a loss of $11 million in the same quarter a year ago, reflecting revenue increases and lower management retention amortization.
Insights into the Dow Jones Acquisition:
- Management is impressed with the quality and potential of the assets acquired at Dow Jones and is already finding ways to expand and strengthen the company’s flagship paper, The Wall Street Journal.
- The firm is launching a luxury lifestyle magazine in September that will initially reach more than 800,000 people, and is looking at ways to broaden the paper’s readership and advertising by augmenting its editorial content to feature more political, international, cultural, and general national news.
- Several changes have already been initiated in its look, beginning with the recent redesign of the front page and more changes in the works.
