Fox Quarterly Earnings Drop as 'Fantastic Four' Flop Hits Film Results

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The company, led by executive chairmen Rupert Murdoch and Lachlan Murdoch and CEO James Murdoch, also was affected by currency fluctuations and the exclusion of Shine from its result after the formation of Endemol Shine.

21st Century Fox on Wednesday reported lower quarterly earnings as the conglomerate's film unit recorded weaker results amid a strong year-ago period and the disappointing box office for The Fantastic Four.

The company, led by executive chairmen Rupert Murdoch and Lachlan Murdoch and CEO James Murdoch, also was affected by currency fluctuations and the exclusion of Shine from its result after the formation of Endemol Shine.

Cable networks unit results were higher than in the year-go period, and TV results also rose.

The company posted fiscal first-quarter earnings from continuing operations of $678 million, or 34 cents per share. Adjusted for certain additional factors, the figure met the 38 cents cents Wall Street had expected. In the year-ago period, it had recorded earnings of $1.04 billion, or 48 cents per share, or 39 cents on the adjusted basis.

But the conglomerate's film unit results dropped, hurt by The Fantastic Four, which underperformed at the box office, and what Jefferies analyst John Janedis called "muted results from Paper Towns and Hitman: Agent 47." Fantastic Four had a budget of $125 million, with previous estimates putting the studio's loss at $60 million-$100 million. The bad performance of the reboot also threw into question whether Fox will move ahead with a sequel, dated for June 9, 2017.

Rupert Murdoch said that the quarterly results "reflect the expected impact of challenging comparisons for our film studio due to the timing of key releases, as well as the poor performance of The Fantastic Four." He added: "We are pleased with the recent success of The Martian, and as we look forward, we have an exciting film slate, which includes this weekend’s The Peanuts Movie, the holiday release of Joy, as well as the summer releases of the newest X-Men and Independence Day."

He added: "Good progress is being made at the Fox network both from our returning series, including the continued success of Empire, as well as some of our new series. We are focused on creating compelling storytelling and enhancing the customer experience of our digital video brands as we respond to changing consumer preferences."

Murdoch also lauded the cable networks business for generating "strong growth" in the first fiscal quarter.

Film unit operating income before depreciation and amortization came in at $149 million, down from $458 million in the year-ago period. Quarterly segment revenue fell to $1.79 billion, "primarily reflecting lower worldwide theatrical revenues, the absence of revenue contributions from Shine, lower syndication revenues reflecting the sale of How I Met Your Mother in the prior year and the adverse impact of the strengthened U.S. dollar." The company has contributed Shine to the new Shine Endemol joint venture that also includes the former Core Media business.

The film profit decline reflected "lower contributions from the film studio attributable to the difficult comparisons to last year’s successful worldwide theatrical performance of Dawn of the Planet of the Apes and the home entertainment performance of Rio 2, with this year’s worldwide theatrical release of The Fantastic Four in August as well as higher theatrical pre-release costs in the current year primarily related to the successful worldwide theatrical release of The Martian in early October, which has grossed over $430 million in worldwide box office to date," the company said. Results were are hurt by lower contributions from the TV production businesses and a negative 11 percent impact from foreign-exchange rate fluctuations.

TV unit earnings of $196 million rose 13 percent, "driven by lower operating costs led by lower programming expenses at the Fox broadcast network and TV stations partially offset by higher marketing costs at the Fox broadcast network." Revenue was virtually unchanged "as strong retransmission consent revenue growth was counterbalanced by a 5 percent decline in advertising revenues primarily reflecting the expected impact of one less week of National Football League broadcasts in the current quarter as compared to the prior-year quarter and lower political revenues at the TV stations, as well as lower general entertainment ratings at the Fox broadcast network."

Cable networks unit earnings rose 26 percent to $1.31 billion "driven by a 7 percent revenue increase on strong affiliate revenue growth and higher advertising revenues combined with lower expenses." The lower expenses came in the absence of the prior-year broadcast of the India versus England cricket series on Star Sports. "Foreign-exchange fluctuations, primarily in Latin America and Europe, adversely impacted segment [profit] growth by 5 percent," Fox said.

Nov. 3, 7:45 a.m. Updated and corrected to highlight that the consensus earnings estimate was met when looking at fully adjusted earnings.

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