Discovery Posts Higher Third-Quarter Earnings, Lowers Full-Year Guidance

CEO David Zaslav discusses recent news of CBS and HBO online-only video services

Discovery Communications, led by CEO David Zaslav, reported improved third-quarter financials on Tuesday, but lowered its full-year growth outlook, citing weaker U.S. advertising sales, the "geopolitical situation in Russia" and foreign currency exchange rate trends.

As of 10:20 a.m., Discovery's stock was down 8.7 percent to $32.56.

The cable networks company reported earnings of $280 million, or 41 cents per share, up 9.8 percent compared with $255 million in the year-ago period. Wall Street had on average expected slightly higher earnings of $283.5 million, or 42 cents per share.

Quarterly revenue rose 14 percent to $1.57 billion. U.S. advertising revenue was up only 1 percent. International ad sales were up 20 percent, or up 12 percent when excluding Eurosport.

Read more The Hub to Rebrand as Discovery Family Channel as Discovery Takes Control

For the full year, Discovery previously expected total revenue of $6.45 billion-$6.525 billion, but on Tuesday, it cut that to $6.3 billion to $6.35 billion. It had also previously forecast adjusted net income of $1.34 billion-$1.4 billion, which it has now lowered to $1.275 billion- $1.305 billion.

"Discovery's strong global organic growth and reach coupled with increasing contributions from our recent strategic acquisitions led to another quarter of solid results," said Zaslav. "Our expansive content portfolio drove audience gains and boosted our market share around the world as we continued to benefit from the ongoing development of the global pay TV market. Going forward, we remain committed to investing in world-class content, building the next generation of businesses and brands and leveraging our diversified and well-positioned worldwide assets to deliver consistent operational and financial results and long-term shareholder value."

Read more Rich Ross Named Discovery Channel President

Sterne, Agee analyst Vasily Karasyov said in a first review: "Third-quarter results are in line with our model, but the guidance for 2014 is revised downwards. The stock is likely to be under pressure today. However, if management comments on the call on sequential improvement in U.S. advertising revenue trends the day may not be a tough as it’s looking now."

On the earnings call, Discovery executives declined to project advertising trends in detail amid more last-minute ad sales.

Zaslav also said that boosting U.S. ratings for the company is "a top priority" for his team. He also discussed the appointment of Rich Ross as head of the Discovery Channel as of the new year. He called him a "great old friend of mine who I have always admired," he said. "We have high expectations for Rich to drive Discovery's next chapter of growth."

Zaslav also touted a recent repositioning of a kids channel. Ratings are up in the double-digit percentage range at Discovery Family, the former Hub, in which Discovery recently took a controlling stake after running it as a 50:50 joint venture with toy giant Hasbro before, he said.

Zaslav also said that auto channel Velocity has global growth opportunities as the company looks to roll it out in more countries to 125 million subscribers, similar to how it has expanded the reach of TLC and, more recently, ID.

He also touted more than 100 percent ratings growth for the company's networks in India this year, calling it one of its most exciting growth markets. 

Nov. 4, 7:20 a.m. Updated with stock reaction.

Email: Georg.Szalai@THR.com
Twitter: @georgszalai

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