Weak Guidance, Network Challenges Erase Fox's Strong Earnings Report

Associated Press
Rupert Murdoch

The company also raised its dividend but offered weak guidance.

Rupert Murdoch's 21st Century Fox posted quarterly earnings that beat the expectations of analysts, though weak guidance tied to ongoing ratings problems with the television network had investors selling the stock during the after-hours session. 

The entertainment and media conglomerate said it earned an adjusted 53 cents per share in its fiscal second quarter on adjusted revenue of $7.42 billion. Analysts had predicted 42 cents per share on $7.36 billion.

Revenue was down from $8.2 billion in the same quarter last year, though earnings-per-share was significantly higher than the 33 cents the company posted a year ago.

Shares of 21st Century Fox closed fractionally higher to $34.66 on Wednesday, then advanced another 3 percent after the closing, but quickly dropped to minus 5 percent after the company offered up weak financial guidance as it invests heavily in TV and deals with international shifts in currency rates.

The company also said Wednesday it has raised its dividend by 20 percent to a prospective 30 cents per share annually.

The conglomerate's television segment posted $1.62 billion in revenue, down from $1.63 billion in the year-ago quarter, though operating income was up 33 percent due to lower costs associated with the cancelation of X-Factor, the absence of Glee during the quarter and the shift of the Major League Baseball Championship Series to cable's Fox Sports 1.

"We delivered solid quarterly results despite continuing currency headwinds and ratings challenges at the Fox broadcast network," said Murdoch, the conglomerate's CEO and controlling shareholder.

21st Century Fox veterans Dana Walden and Gary Newman were recently tapped to head Fox Broadcasting and COO Chase Carey praised the duo during a conference call with analysts on Wednesday.

"We've turned the corner with a new network management team who inherited our current broadcast issues," he said.

Carey touted successful new shows Empire and Gotham, but warned that the TV broadcast segment is in investment mode and bigger profits will come after establishing expensive new hits.

As for cable network programming, the company's largest segment, revenue rose 14 percent to $3.4 billion and operating income rose 12 percent to $1.16 billion, with domestic affiliate revenue up 19 percent and domestic advertising up 11 percent. Growth in the segment was credited to FX Networks, Fox News Channel, Fox Sports 1, YES Network and others.

The company's filmed entertainment segment posted $2.75 billion in revenue, up from $2.48 billion, though operating income fell slightly to $336 million. Theatrical releases contributing to the higher revenue included The Maze Runner and Gone Girl, but operating income took a hit because of the TV production business, which is included in the filmed entertainment segment. That segment delivered fewer shows than a year ago due to the absence of How I Met Your Mother, White Collar and Glee.

During the quarter, the company sold its stakes in Sky Italia and Sky Deutschland. With those items taken into account, the company posted net income of $6.3 billion, or $2.88 per share.

The company also created a joint venture from its Shine Group, and it recorded a pre-tax gain of $63 million for that transaction.

Email: Paul.Bond@THR.com