In a sign that investors are taking a breather from the epic rally global markets have sustained since the middle of 2012, even the high quality, second-quarter results released by Rupert Murdoch’s News Corporation (NWS.AX) were greeted with a 2.5% drop in the share price.
Once again, the results were stellar. Given the global span of ‘Rupert’s empire’, there is always a struggling division or blemish to find somewhere amongst the filings. However, the all-important cable division was again the stand-out performer, providing revenue growth of 18% and earnings growth of 7%. After adjusting for one-off gains and expenses, including a US$56 million expense related to the ongoing case surrounding phone taping at the UK tabloid paper News of the World, quarterly underlying earnings grew to US$1.037 billion, up from US$981 million.
Impressive capital management
Capital management at News Corp. has also been impressive, with the ongoing share buy-backs reducing shares outstanding by 7% compared to a year ago. The benefit to shareholders is highlighted by the earnings per share (EPS) number. While underlying earnings grew a respectable 5.7%, underlying EPS grew 12.8% thanks to the effect of reduced shares on issue. Likewise, the decision to split the entertainment and publishing businesses is more than likely a shareholder-enhancing move. History has shown that companies that undergo splits often create shareholder value with the sum of the parts split ultimately worth more than the whole. The board also declared a dividend of US 8.5 cents.
Foolish investors know that looking at customers and competitors is an important aspect of analysing the fortunes of a company. Management comments regarding its Australian Publishing assets may provide some insights into what to expect when other publishers, particularly Fairfax Media (FXJ.AX) and APN News and Media (APN.AX) report their upcoming results. While some think Fairfax and APN could turn out to be bargains, Fools may be better off focusing their attention on online publishers that should continue to do well at the expense of the old mastheads such as Seek (SEK.AX) and Carsales.com (CRZ.AX).
As reporting season gets into full swing, investors are going to be busy keeping up with the stampede of results. While ‘headline’ or ‘reported’ numbers can find their way into news reports, it is the underlying net profit after tax that really matters when evaluating a company’s results. In News Corp.’s case, the underlying results were solid and likely justify the current stock price.
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