Fox Quarterly Earnings Rise, Driven By Broadcast TV

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Lachlan, Rupert and James Murdoch (from left to right)

The company, led by executive co-chairmen Rupert and Lachlan Murdoch and CEO James Murdoch, will not hold an earnings call due to its deal to sell large parts of its business to Walt Disney for $71.3 billion.

On Wednesday, 21st Century Fox reported higher fiscal first-quarter earnings in line with Wall Street expectations.

The company, led by executive co-chairmen Rupert and Lachlan Murdoch and CEO James Murdoch, reported adjusted earnings of 52 cents per share, which compared with 49 cents per share in the year-ago period and was in line with Wall Street expectations.

Other profitability metrics were also higher. Quarterly income from continuing operations before income tax expense of $1.48 billion increased 15 percent. And total segment operating income before depreciation and amortization rose 5 percent to $1.87 billion, driven by higher contributions reported at the firm's broadcast TV, cable networks and filmed entertainment units.

When including a $220 million non-cash tax benefit related to the sale of Fox's 39 percent stake in European pay TV giant Sky to Comcast, quarterly income from continuing operations would have hit $1.29 billion, or 69 cents per share, up 54 percent over the year-ago period.

Fiscal first-quarter revenue increased 2 percent to $7.18 billion on higher affiliate and advertising revenue in the broadcast and cable TV segments, "partially offset by lower theatrical revenue reported at the filmed entertainment segment." The impact of foreign exchange rates adversely affected the latest financials, Fox highlighted.

The company, which this summer agreed to sell many of its businesses to the Walt Disney Co. for $71.3 billion, will not hold an earnings conference call due to the deal, which is expected to close during the first half of 2019.

"We continue to deliver against our growth plan even as we make important strides toward completing our Disney transaction and launching Fox in the first half of 2019," said Lachlan Murdoch. "We have assembled a stellar leadership team for Fox, giving us further confidence in the new company’s ability to capture opportunities in live programming while delivering long-term value for shareholders. Our quarterly performance builds on the operational and financial achievements of last year and sets up our businesses for continued momentum under both the enlarged Disney and the future Fox."

In Fox's film unit, quarterly operating income before depreciation and amortization (OIBDA) rose 8 percent to $277 million thanks to "higher contributions from the television production studio led by higher SVOD licensing of animated product." Quarterly film unit revenue decreased 7 percent to $1.82 billion, "primarily reflecting lower theatrical revenue at the film studio from a lower volume and mix of films released in the current quarter."

Bernstein analyst Todd Juenger had noted in his earnings preview that Fox's box office in the quarter "declined significantly to $70 million due to a dearth of releases," led by The Predator, directed by Shane Black.

"With the World Cup incrementally better than expected, Thursday Night Football (only week 1 fell in the quarter) a pleasant surprise, and robust political revenue, we expect advertising to be strong in the fiscal first quarter," Jefferies analyst John Janedis wrote in his Fox earnings preview.

That was indeed the case as Fox reported broadcast TV unit of $168 million, up 38 percent, driven by an advertising revenue gain of 22 percent, thanks to the FIFA World Cup and more NFL games, as well as "higher political advertising revenue related to the midterm U.S. elections at the TV stations." Retransmission consent revenue also grew 19 percent. Expenses rose 17 percent due to the higher sports programming costs.

Fox News was once again a key driver in the company's cable network programming unit, which saw OIBDA rise 2 percent to $1.54 billion. A 4 percent revenue increase due to higher affiliate and advertising revenue was partially offset by a 5 percent increase in expenses, "primarily due to higher global sports programming costs reflecting the impact of the FIFA World Cup at both FS1 and Fox Networks Group International and contractual increases at the regional sports networks."

While foreign operations were hit by foreign-currency effects, domestic cable unit revenue increased 7 percent, "led by higher affiliate and advertising revenues partially offset by lower content revenue due to lower third-party licensing of scripted content at FX Networks." The domestic operations' OIBDA contribution increased 6 percent, led by higher contributions from Fox News and the regional sports networks.