Discovery First-Quarter Earnings Rise, U.S. Ad Revenue Grows 7 Percent

The cable networks company is led by CEO David Zaslav.

Discovery Communications, the company behind such cable networks as Discovery Channel, TLC and OWN, on Thursday reported better-than-expected first-quarter earnings that were helped by stronger U.S. advertising revenue and the sale of a radio business in Europe, but were also affected by ongoing international currency headwinds.

The networks company raised its earnings forecast for 2016, saying it now expects adjusted earnings per share, excluding currency effects, to grow at least in the high-teen percentages. The earnings report came after Discovery late Wednesday unveiled plans for cost cuts and restructurings, including asking workers to voluntarily leave the company and, if needed, lay off employees. Discovery said it would incur costs of $40 million-$60 million for that.

The company, led by CEO David Zaslav, reported quarterly earnings of $263 million, compared with $250 million in the year-ago period. Earnings per share came in at 42 cents, or 46 cents on an adjusted basis. That compared with 37 cents in the year-ago period, or 42 cents on an adjusted basis. Wall Street had on average expected 41 cents per share.

Revenue rose 1.1 percent to $1.56 billion. U.S. advertising revenue jumped 7 percent in the first quarter in the latest sign in earnings reports that the ad market remained strong early in the year, with the company citing "higher pricing and inventory management, partially offset by lower delivery." U.S. distribution revenue grew 8 percent. Adjusted operating profit at the company's U.S. networks ended up 11 percent at $473 million.

Discovery's international networks posted a 4 percent distribution revenue gain, but 9 percent ad drop, leaving adjusted operating profit down 14 percent at $185 million. The company cited currency effects and the sale of SBS Radio last summer as factors weighing on the latest results compared to year-ago figures.

Like other entertainment giants, the company has been affected by foreign-currency fluctuations, but given that 50 percent of its revenue comes from outside the U.S., it has been hit harder than its peers. Amid a strong dollar, foreign results have translated into fewer dollars.

MKM Partners analyst Eric Handler had predicted U.S. advertising revenue growth of 8 percent. He had recently moved his overall forecast for the quarter "a bit higher largely due to domestic advertising strength."

But Handler also cautioned: "From a big-picture perspective, we have concerns about recent domestic ratings weakness (particularly at Discovery Channel) and a possible slowdown in advertising spending in the latter portion of 2016 and into 2017."

Zaslav said Thursday: "Discovery’s business momentum continued to build in the first quarter with strong viewership across our worldwide portfolio of brands and platforms."