FOX Q4 Earnings Down Y/Y, Revenues Up On High Affiliate Fees

Fox Corporation (NASDAQ:FOX) reported fourth-quarter fiscal 2019 adjusted earnings of 62 cents per share that decreased 7.5% year over year.

Revenues were up 5% year over year to $2.51 billion. Affiliate fees (56.1% of revenues) grew 7.4% to $1.41 billion. Advertising (36.5% of revenues) revenues decreased 6% to $918 million.

Other revenues (7.4% of revenues) rallied 77.9% to $185 million. Higher digital content licensing revenues at the Television segment drove year-over-year growth.

Notably, Fox became a standalone, publicly-traded company on Mar 21, 2019, following the merger of Disney and Twenty-First Century Fox, Inc.

The standalone Fox’s portfolio comprises Twenty-First Century Fox’s news, sports and broadcast businesses. These include FOX News, FOX Business, FOX Broadcasting Company (the FOX Network), FOX Sports, FOX Television Stations Group, sports cable networks like FS1, FS2, FOX Deportes and Big Ten Network, and certain other assets.

Top-Line Details

Cable Network Programming (51.7% of revenues) revenues increased 2.2% year over year to $1.30 billion. While affiliate fees and other revenues increased 2.9% and 11.4%, respectively, advertising revenues declined 1.4%.

Affiliate revenues benefited from contractual price increases across all networks, partially offset by net subscriber declines.

A year-over-year decline in advertising revenues primarily reflected lower contributions from FIFA Women’s World Cup programming in the reported quarter compared with the contributions from the FIFA Men’s World Cup in the year-ago quarter. However, higher digital advertising sales at FOX News benefited the top line.

Television (47.1% of revenues) revenues increased 5.2% from the year-ago quarter to $1.18 billion. While advertising revenues declined 8.1%, affiliate fees and other revenues increased 18.4% and 72.1%, respectively.

The segment’s revenues benefited from higher digital content licensing revenues. However, advertising was negatively impacted by fewer FIFA World Cup matches and lower cyclical political revenues.

Operating Details

In fourth-quarter fiscal 2019, operating expenses decreased 6.4% year over year to $1.36 billion. As a percentage of revenues, operating expenses declined 660 basis points (bps) to 54%.

Selling, general & administrative (SG&A) expenses increased 45.4% on a year-over-year basis to $336 million. As a percentage of revenues, SG&A expenses jumped 500 bps to 12.2%.

The year-over-year growth in SG&A expenses was primarily attributed to higher costs related to FOX operating as a standalone public company.

Segment EBITDA increased 10.8% year over year to $709 million. EBITDA margin expanded 150 bps to 28.2%.

Cable Network Programming EBITDA increased 4.2% to $602 million. EBITDA margin expanded 90 bps to 46.3%.

Television EBITDA surged 92.8% to $214 million. EBITDA margin expanded to 18.1% from 8.2% in the year-ago quarter.

Balance Sheet

As of Jun 30, 2019, Fox had $3.23 billion in cash and cash equivalents compared with $2.82 billion as of Mar 31, 2019. Long-term debt was flat at $6.75 billion.

Moreover, Fox announced a dividend of 23 cents per share to be paid on Oct 2, 2019, to shareholders of record as on Sep 4.

Zacks Rank & Stocks to Consider

Fox currently carries a Zacks Rank #5 (Strong Sell).

Some better-ranked stocks in the broader Consumer Discretionary sector include Comcast (NASDAQ:CMCSA) , Gluu Mobile (NASDAQ:GLUU) and Shaw Communications (NYSE:SJR) . All three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth rate for Comcast, Glu Mobile and Shaw Communications is 11.9%, 15% and 5%, respectively.

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