21st Century Fox (FOXA) Tops Q4 Earnings, Costs A Worry

Twenty-First Century Fox, Inc. (NASDAQ:FOXA) reported better-than-expected earnings in the fourth-quarter fiscal 2016 after reporting in-line earnings in the preceding two quarters. The company reported earnings of 45 cents which surpassed the Zacks Consensus Estimate of 36 cents and also increased 15.4% year over year.

Including one-time items, earnings came in at 30 cents a share compared with 6 cents in the year-ago quarter.

On the other hand, total revenue of $6,646 million improved 7.1% year over year but missed the Zacks Consensus Estimate of $6,656 million. This year over year increase was driven by improvement in affiliate and advertising revenues at both the Cable Network Programming as well as Television segments. Increase in content revenues at the Filmed Entertainment segment also boosted the company’s overall revenue. However, the top-line growth was limited by $116 million or 2% negative impact of foreign currency exchange rate.

Segment wise, Cable Network Programming revenues grew 9.9% to $3,921 million driven by robust affiliate growth revenues as well as advertising and content revenues.

Despite growth in top line and bottom line, the company’s shares declined 4.3% in after-hour trading session on Aug 3, 2016 primarily due to higher sports programming and film marketing expenses.

Filmed Entertainment revenues were up 6.9% to $2,038 million, whereas Television segment net revenues were up 5.5% to $1,041 million, both on a year-over-year basis.

The company’s adjusted total segment operating income before depreciation and amortization (OIBDA) declined 6% year over year to $1,451 million in this fiscal quarter. Decrease in OBIDA was due to lesser contribution from the Filmed Entertainment segment.

Detailed Discussion

OIBDA at Cable Network Programming edged down 0.3% to $1,214 million primarily due to 15% increase in expenses. The rise in expenses was mostly due to increased sports programming costs owing to soccer rights costs at FNG International as well as Major League Baseball and streaming rights costs at the RSNs. Increase in expenses was also stemmed by rise in marketing and digital expenses at STAR India coupled with higher political coverage costs at Fox News. Foreign currency fluctuations hurt the segment’s OIBDA growth by 3%, primarily in Latin America and India.

OIBDA contribution from domestic channels rose 7% owing to sturdy OIBDA growth at FX Networks, FS1 and Fox News.

Further, at the domestic cable channels, affiliate revenues grew 6% due to sustained growth across FS1, FX Networks and Fox News Channel. Domestic advertising revenues surged 13% on increase in pricing and rating both at Fox News and FS1.

On the other hand, OIBDA contribution from International cable channels plunged 25% on increase in expenses at FNG International and higher marketing and digital costs at STAR India. It was also hampered by foreign currency headwinds. Affiliate revenues were up 9% due to growth in local currency at STAR India as well as the FNG International entertainment channels. However, the increase was negated by 10% forex impact.

Filmed Entertainment’s OIBDA dropped 39% to $164 million in the quarter primarily due to rise in theatrical releasing costs. Intensified currency headwinds affected the segment’s OIBDA by 4%.

Television segment’s OIBDA jumped 27.4% to $144 million because of increase in revenues, marginally overshadowed by rise in entertainment programming as well as marketing costs at the company’s FOX Broadcast Network.

Other Financial Details

Twenty-First Century Fox ended the quarter with cash and cash equivalents of $4,424 million. Total borrowings came in at $19,725 million and shareholders’ equity, excluding non-controlling interest of $1,220 million, came in at $13,661 million.

On Aug 4, 2015, the company announced a new share repurchase authorization of $5 billion with a one-year time frame. In reported quarter, Twenty-First Century Fox bought back 34 million shares for $974 million.

The company’s board of directors increased annual dividend by 6 cents and announced semi-annual dividend of 18 cents per share. The semi-annual dividend will be paid on Oct 19, 2016 to shareholders as of record of Sep 14, 2016.

At present, Twenty-First Century Fox, which share, space with Lions Gate Entertainment Corp. (NYSE:LGF) carries a Zacks Rank #3 (Hold). Some better-ranked media stocks include MSG Networks Inc. (NYSE:MSGN) and World Wrestling Entertainment Inc. (NYSE:WWE) . Both the stocks holds a Zacks Rank #2 (Buy).