NBCUniversal Second-Quarter Earnings Hit by Lower Film Results

Courtesy of Hopper Stone/ Universal Studios

The company posted higher broadcast, cable networks and theme parks results as parent company Comcast reports its smallest second-quarter pay TV subscriber loss in more than a decade.

Cable giant Comcast on Wednesday reported its second-quarter financials, including lower profit figures for its entertainment arm NBCUniversal amid tough box-office comparisons and its smallest second-quarter pay TV subscriber decline in more than a decade.

Kicking off earnings season for big Hollywood players, NBCUniversal posted operating cash flow, the profitability metric the company uses, of $1.69 billion, down 6.4 percent on a pro forma basis from the year-ago period. The figure was down only 0.2 percent when excluding the financials from the recently acquired 51 percent stake in Universal Studios Japan from the year-ago figures.

The film unit was a drag on operating cash flow amid tough year-ago comparisons and weaker box-office trends, while all other units grew their bottom line.

NBCUniversal's overall revenue for the quarter was down 5.1 percent, or 1.8 percent when not adjusting for the theme parks acquisition. "Despite an expected difficult comparison to last year's record second-quarter film slate, NBCUniversal achieved solid results, driven by strength in our TV businesses and theme parks, which benefited from the successful opening of The Wizarding World of Harry Potter in Hollywood," said Comcast chairman and CEO Brian Roberts.

Wunderlich Securities analyst Matthew Harrigan had predicted a 6.3 percent decline in second-quarter revenue at NBCUniversal and a 1.6 percent operating cash flow drop.

Comcast's overall operating income decreased 1 percent to $4.1 billion, with net income down 5 percent to $2.03 billion, while revenue grew 2.8 percent to $19.3 billion. The overall results came in ahead of Wall Street expectations. It was Comcast's first quarterly earnings report since unveiling its deal to acquire DreamWorks Animation.

Comcast's cable systems lost 4,000 video subscribers, marking their best second-quarter result in more than 10 years, according to the company. In the year-ago period, it had lost 69,000 video subs. Comcast ended June with 22.396 million video subs.

Film unit revenue declined 40.4 percent in the second quarter, "reflecting lower theatrical and home entertainment revenue, partially offset by higher content licensing and other revenue." Theatrical revenue was down 78.8 percent from the year-ago period that had benefited from Furious 7 and Jurassic World. Home entertainment revenue declined 25.1 percent, "primarily due to the strong performance of several releases in the prior-year period, including Fifty Shades of Grey." Film operating cash flow dropped 86.7 percent to $56 million amid the lower revenue, partially offset by lower programming and production costs amid a smaller film slate.

Broadcast TV unit revenue increased 17.3 percent in the quarter to $2.1 billion and operating cash flow jumped 70.5 percent to $394 million amid higher content licensing and distribution, including retransmission consent fees, and advertising revenue. Ad revenue rose 2.9 percent, with the company citing "higher rates, partially offset by audience ratings declines."

Cable networks unit revenue in the second quarter rose 4.7 percent to $2.6 billion, "reflecting higher distribution revenue and content licensing and other revenue," with distribution results driven by "contractual rate increases and contract renewals, partially offset by a decline in subscribers at our cable networks." Ad revenue was stable "due to higher rates, offset by audience ratings declines." Cable networks operating cash flow grew 8.3 percent in the quarter to $944 million.

Quarterly theme parks revenue increased 47 percent, or 10.6 percent when assuming the company had owned the stake in Universal Studios Japan in the year-ago period, to $1.1 billion. Operating cash flow rose 40.5 percent, or 5.3 percent, to $469 million amid higher per-capita spending and the successful opening of Hollywood’s The Wizarding World of Harry Potter attraction, partially offset by an increase in operating expenses.

On an investor conference call after the earnings announcement, NBCU CEO Steve Burke hailed the upfront results, calling the dividends in the TV advertising market including 12.5 percent growth rates a sign of terrific progress. He also raised expectations for Rio later this month, telling analysts, "We are looking at a very profitable Olympics."