News Corp (NWSA) Down 5.6% Since Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for News Corporation NWSA. Shares have lost about 5.6% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is NWSA due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

News Corp Q3 Earnings Top, Soft Ad Revenues a Concern

Rupert Murdoch-controlled News Corporation delivered sixth straight quarter of positive earnings surprise, when it reported third-quarter fiscal 2018 results. Also, revenues surpassed the Zacks Consensus Estimate for the third successive quarter. Results gained from sturdy performance at the Digital Real Estate Services, Book Publishing and Cable Network Programming segments.

However, sluggish print advertising demand still remains a concern. Nevertheless, the company is concentrating on cost cutting, expanding digital offerings with greater emphasis on real estate services to mitigate the impact of the same. Management also highlighted that from the final quarter of fiscal 2018, the combination of digital real estate services and pay-TV operations will represent more than half of profits and propel recurring subscription-based revenues considerably.

News Corporation also hinted that with the consolidation of Foxtel and FOX SPORTS Australia, circulation and subscription revenues is likely to emerge as one of the prominent revenue streams for the company. This will help shield it from volatility in the advertising market. The new segment — Subscription Video Services — formed due to consolidation will also incorporate Australian news channel operator, Sky News.

Q3 Highlights

News Corporation delivered adjusted earnings of 6 cents a share that came a penny ahead of the Zacks Consensus Estimate but declined 14% from the year-ago quarter.

Including one-time items, the publisher of The Wall Street Journal reported quarterly loss of $1.94 per share that widened from a loss of one cent in the prior-year period on account of non-cash write-downs related to Foxtel and FOX SPORTS Australia and non-cash impairment charge at News America Marketing.

Moreover, News Corporation stated that total revenues in the reported quarter came in at $2,093 million, up 6% from the year-ago quarter. The top line outpaced the Zacks Consensus Estimate of $1,975 million as well. Adjusted revenues (excluding the impact of acquisitions, foreign currency fluctuations and divestitures) of $2,008 million, improved 2% year over year.

While advertising revenues declined 3% to $687 million, circulation and subscription revenues increased 7% to $659 million. Consumer revenues also rose 6% to $381 million, while revenues from real estate were up 24% to $208 million. Meanwhile, Other revenues improved 23% to $158 million.

Total segment EBITDA was $182 million for the quarter under review, reflecting a decline of 15% from the prior-year period.

Segment Details

Revenues from the News and Information Services segment jumped 2% over year to $1,286 million in the reported quarter. At News UK and Dow Jones, revenues increased 10% and 4%, respectively. However, at News America Marketing and News Corp Australia, the metric decreased 5% and 3%, respectively. Further, the segment’s adjusted revenues declined 2% from the year-ago quarter.

Advertising revenues fell 3% year over year due to softness in the print advertising market, primarily in Australia and the United States, and lower revenues at News America Marketing. The decision to stop The Wall Street Journal’s international print editions also impacted the results. These were somewhat mitigated by modest improvement in digital advertising revenues at News Corp Australia and Dow Jones as well as marginal growth in advertising revenues at News UK. Foreign currency fluctuations also acted as a tailwind.

Circulation and subscription revenues grew 7% on account of strong contribution from Dow Jones — which witnessed nearly 10% growth in the circulation revenues — persistent increase in digital subscriber at The Wall Street Journal along with sturdy growth at its professional information business. Rise in cover and subscription price, and favorable currency impact also aided revenue growth. These were partly offset by fall in newsstand volume at News UK.

In the quarter under review, digital revenues accounted for 29% of segment revenues compared with 24% in the year-ago period. Segment EBITDA plunged 31% to $85 million.

The Book Publishing segment reported revenues of $398 million, up 6% from the prior-year period. Digital sales, which constituted 22% of Consumer revenues, rose 5% from the prior-year quarter owing to increase in downloadable audio book sales. The segment’s adjusted revenues rose 4% in the quarter. Segment EBITDA surged 16% to $43 million.

Revenues at the Digital Real Estate Services segment advanced 27% year over year to $279 million on the back of sustained growth witnessed across REA Group (up 35% to $158 million) and Move (up 15% to $115 million). Further, the segment’s adjusted revenues were up 18%. Segment EBITDA surged 17% to $88 million.

The Cable Network Programming segment’s revenues came in at $129 million, up 6% on account of rise in affiliate revenues at FOX SPORTS Australia and Australian News Channel and favorable currency fluctuations. The segment’s adjusted revenues also grew 2% in the quarter. However, segment EBITDA plummeted 53% to $16 million.

Other Financial Aspects

News Corporation ended the quarter with cash and cash equivalents of $2,112 million, borrowings of $184 million and shareholders’ equity of $9,695 million, excluding non-controlling interest of $296 million.

Capital expenditures of $200 million were incurred in the nine months of fiscal 2018, while free cash flow available to the company was $184 million.

Outlook

Management stated that advertising trends so far in the fourth quarter are mostly in line with the third quarter. Moreover, the company anticipates marketing costs at Dow Jones to increase marginally on account of driving digital paid subscribers.

The company has entered into a licensing deal with Amazon to create an original television series based on The Lord of the Rings by JRR Tolkien, which is likely to be accretive in the fourth quarter. The company expects to generate more than $20 million additional revenues.

News Corporation expects sturdy revenue growth at REA.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to three lower. Last month, the consensus estimate has shifted downward by 35.6% due to these changes.

News Corporation Price and Consensus

 

News Corporation Price and Consensus | News Corporation Quote

VGM Scores

At this time, NWSA has an average Growth Score of C, though it is lagging a lot on the momentum front with an F. The stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable solely for growth based on our styles scores.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, NWSA has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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