Fox Earnings Exceed Estimates Though Film Revenue Falls

1:10 PM PST 05/07/2014 by Paul Bond
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Rupert Murdoch

UPDATED: During a call with analysts, president and COO Chase Carey said he has an understanding with Rupert Murdoch to continue with the company even though a contract hasn't been signed.

21st Century Fox reported fiscal third-quarter earnings Wednesday of 47 cents per share on $8.22 billion in revenue, results that exceeded the expectations of Wall Street even though film revenue fell year over year.

Analysts were expecting the entertainment conglomerate to earn 35 cents a share on $7.99 billion revenue.

"The sizeable audiences of our live television events, led by the most-watched Super Bowl in history, underscore the value of our investments in live sports programming," said chairman and CEO Rupert Murdoch

During a conference call with analysts, president and COO Chase Carey said he has an understanding with Murdoch, who was not on the call, to continue with the company even though a contract hasn't been signed. Carey's current arrangement ends later this year and speculation as to how his role might change was fueled in March when Murdoch's sons, Lachlan and James, were each promoted.

"Rupert and I have an understanding and a new agreement. We've simply not gotten it on paper yet," Carey told the analysts on Wednesday. "We have a clear understanding on where we're going."

Shares of Fox are down 9 percent so far this year, though 28 of 31 Wall Street analysts who cover the stock rate it a "buy." On Wednesday, the stock closed 1 percent lower to $31.40 but it was up 4 percent after the closing bell when the quarterly financial results were released.

Of the various reporting segments within the conglomerate, "filmed entertainment" was weakest, with revenue falling 3 percent to $2.28 billion. The unit fared better with operating income (before depreciation and amortization), where it reported a gain of $354 million, up from $334 million in the same quarter a year ago.

While filmed entertainment benefited from the TV production business, including subscription VOD sales to Amazon.com and the syndication of Modern Family, it was hampered by the timing of the theatrical launch of Rio 2, which was released last month and has earned nearly $400 million worldwide.

On the conference call with analysts Wednesday, Carey acknowledged having gone through some "challenging" quarters for the film studio, but the popularity of Rio 2 is one indication it has "turned the tide." He also expressed confidence in The Fault in Our Stars, opening June 6, Dawn of the Planet of the Apes (July 11) and X-Men: Days of Future Past (May 23). He did not address allegations of an underage sex scandal involving X-Men director Bryan Singer.

The company's biggest unit, "cable network programming," posted $3.15 billion in revenue, up from $2.83 billion a year ago, with domestic affiliate revenue up 12 percent and domestic advertising up 8 percent.

The conglomerate's "television" segment posted $1.59 billion in revenue, up from $1.25 billion, with ad revenue up 30 percent driven by Super Bowl XLVIII, though declines at American Idol dented results in the TV unit. The Super Bowl contributed about $350 million in revenue during the quarter, the company said.

Carey raved about the Fox News Channel but said the Fox network has been facing "challenges" and that ratings there are "disappointing," in particular American Idol.

He also said that more "big event-type shows" could be coming given the success so far of 24: Live Another Day.

The "direct broadcast satellite television" segment contributed $1.53 billion in revenue during the quarter, up from $1.32 billion.

Email: Paul.Bond@THR.com

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