Discovery (DISCA) Q3 Earnings Miss, Revenues Beat Estimates

Discovery Communications, Inc. (NASDAQ:DISCA) reported mixed results in the third quarter of 2017, wherein revenues surpassed the Zacks Consensus Estimate but earnings lagged the same. The earnings miss disappointed investors. Consequently, shares of the company declined in early trading.

The company’s earnings (excluding 5 cents from non-recurring items) of 43 cents per share missed the Zacks Consensus Estimate of 55 cents. The bottom line, however, expanded 19.4% on a year-over-year basis.

Discovery’s third-quarter revenues of $1,651 million improved 6.1% on a year-over-year basis. Also, revenues outpaced the Zacks Consensus Estimate of $1,638.2 million.

The increase in revenues witnessed in the U.S. Networks and International Networks units was somewhat mitigated by the dismal show of the Education and Other division. However, quarterly adjusted operating income before depreciation and amortization (OIBDA) increased 3% year over year.

Quarterly Performance

Revenues in the U.S. Networks division at Discovery rose 4% to $823 million. Segmental growth was driven by 6% and 3% growth in distribution and advertising revenues, respectively.

Distribution revenues came in at $402 million compared with $381 million a year-ago. Higher affiliate fee rates and increase in revenues from content licensing led to the growth.

Advertising revenues came in at $407 million compared with $396 million a year-ago. Favorable pricing contributed to the growth. Revenues from other sources declined 13% to $14 million in the quarter. Also, adjusted OIBDA was up 5% year over year for the segment. Adjusted OIBDA margin was flat at 58%. Total portfolio subscribers at Discovery declined 5% in the third quarter of 2017.

In addition, International Networks revenues rose 11% to $796 million. While Distribution revenues in the segment improved 13% to $479 million, advertising revenues increased 9% to $298 million. Revenues from other sources were flat on a year-over-year basis at $21 million. Adjusted OIBDA margin slid to 23% compared with 25% a year ago.

Also, revenues from the Education and Other division fell 26% to $32 million. This decline was primarily due to the impact of sale of the Raw and Betty production studios of the company.

Liquidity

The company exited the third quarter of 2017 with cash and cash equivalents of $6,994 million and $14,676 million of debt (non-current portion) compared with $300 million and $7, 841 million, respectively, at the end of 2016. During the quarter under review, the company shelled out $102 million on share buybacks.

Zacks Rank & Key Picks

Discovery Communications, which is scheduled acquire Scripps Networks Interactive (NASDAQ:SNI) early next year, carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader Consumer Discretionary sector are Netflix, Inc. (NASDAQ:NFLX) and SIRIUS XM Holdings (NASDAQ:SIRI) carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1Rank (Strong Buy) stocks here.

Shares of Netflix have gained more than 10%, respectively, in a month. Meanwhile, the SIRIUS XM stock has seen the current-year Zacks Consensus Estimate for earnings being revised 11.8% upward over the last 90 days.

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