21st Century Fox Earnings Preview: What to Expect
Surprise box-office hit 'Deadpool' boosted film revenue in the Hollywood conglomerate's fiscal third quarter.
21st Century Fox will continue the quarterly earnings season parade for entertainment conglomerates after the market close on Wednesday, and Deadpool is likely to get a lot of kudos.
The conglomerate’s U.S. box-office revenue rose 119 percent in the latest quarter, its fiscal third quarter, over the year-ago period to $755 million, boosted by the superhero film in addition to contributions from such films as The Revenant. But analysts emphasize that the release calendar for home video and TV shows sold into syndication was weaker, so that film segment profit could be slightly down in the quarter.
In Fox's broadcast TV segment, live-plus-same-day ratings dropped about 13 percent in the latest quarter, “facing tougher comps versus last year’s entire season 1 release of Empire during the time period," said Macquarie Securities analyst Tim Nollen.
In its cable networks unit, meanwhile, "so-so" ratings will combine with an "especially strong performance from Fox News due to the ongoing political intrigue,” he said. “FX is performing about in line with cable peers, down 7 percent season-to-date, but Fox Sports 1 is weak, prompting the network to seek a refresh of content.”
Overall, Stifel Nicolaus analyst Benjamin Mogil recently raised his quarterly earnings forecast by 8 cents to 47 cents per share amid the better-than-expected box office in the quarter. That would be in line with the company’s year-ago earnings from continuing operations and just above the 46 cents per share First Call consensus estimate.
The earnings call with CEO James Murdoch is expected to touch on the election season's impact and reports of Fox's negotiations to license its content to Hulu, in which it is a partner, for a possible virtual pay TV service.
A recent Fox deal with Dish's Sling TV to make the company's networks available in a package for $20 also is likely to come up. Nollen calls it "intriguing."
The topic of carriage disputes also could come up. “Given the company's regional sports networks exposure and the recent YES/Comcast dispute, though relatively limited given the subscriber count, we view the overall [carriage] tensions as a focal point on the call,” said Mogil.
And Walk Street will listen for any commentary on how Fox's distribution partnership with DreamWorks Animation will be affected by NBCUniversal's $3.8 billion takeover of the studio.
Guidance also will be in focus. Fox's most recent downward revision to its full fiscal-year expectations guidance was primarily driven by currency headwinds and weaker film performance.
"Both of these factors are now trending more favorably since early February, aided by the strengthening of the euro and Brazilian real relative to the U.S. dollar and the theatrical success of Deadpool," said Morgan Stanley analyst Benjamin Swinburne. "Additionally, with no apparent slowdown in the recent TV advertising strength near-term and Fox benefiting from strong ratings trends particularly at Fox News, we see Fox delivering cable ad growth above peers over the next few quarters."