Cable Networks Likely Drove Fox’s Q4 FY15 Earnings

+51.96%
Upside
28.62
Market
43.49
Trefis
FOX: Fox Corp logo
FOX
Fox Corp

21st Century Fox (NASDAQ:FOX) will report its Q4 and annual earnings for fiscal 2015 on August 5th. (The fiscal year ends with June.) [1] Fox’s cable networks performed well in the June quarter. Fox Sports 1 (FS1) saw a massive ratings uptick, courtesy its NASCAR coverage, while Fox News was also up in primetime ratings. This likely boosted Fox’s earnings growth for the quarter. However, Fox Broadcasting saw a ratings decline in the June quarter which likely weighed over the segment’s advertising revenues. Fox was able to sell most of its upfront inventory for 2015-16 television season with a slight decline in volume as compared to the previous television season. This is good for Fox as the ratings decline at broadcasting was steeper. Looking at studio entertainment, it should see a big cut in top line as well as bottom line. The current year quarter was muted with no big title released while the prior year quarter saw massive grossing from various hits, including X-Men: Days of Future Past and Rio2. Furthermore, with little grossing in pocket this quarter, currency headwinds will also weigh over the foreign box-office collection. We currently estimate revenues of about $30 billion for 21st Century Fox in 2015, with EPS of $1.70, which is in line with the market consensus of $1.71, compiled by Thomson Reuters. We currently have a $39 price estimate for 21st Century Fox, which we will update after the June quarter earnings announcement.

Understand How a Company’s Products Impact its Stock Price at Trefis

Relevant Articles
  1. Fox Stock Rallied 6% Last Week – What Should You Know?
  2. Fox Beats Q4 Estimates On The Back Of Gains In Cable Networks, Studio Performance
  3. U.S. Department of Justice Approves Disney-Fox Deal
  4. What Would A Potential Comcast-Fox Combination Look Like?
  5. How Much Could Comcast Benefit From Acquiring Fox’s Studio Business? 
  6. Why We Revised Our Price Estimate For Fox To $43

Cable Networks Likely Drove Earnings Growth While Broadcasting  Dragged 

FS1 saw massive ratings growth during the June quarter. The network primarily benefited from the NASCAR coverage and saw a 75% spike in primetime and a 83% uptick in total day viewership. [2] Looking at Fox News, it continues to stay on top among cable news networks with 14% ratings growth in primetime demo. [3] Given the cable networks’ ratings performance, we expect an uptick in segment revenues. However, looking at Fox’s broadcasting, the network was down 24% in 2014-15 television season. Fox was the worst performer among the Big 4 broadcasting networks. This cannot be attributed purely to a shift in audience from traditional to digital platform but also to Fox’s programming. It must be noted that CBS actually grew 4% in ratings for the same period. [4] Advertising income is largely dependent on television ratings and it could well take a hit for broadcasting in the upcoming earnings. We don’t expect any significant growth in the company’s broadcasting operations in the near term and estimate revenues to be stable at around $5.30 billion in 2015. An estimated EBITDA margin of 18% will translate into EBITDA of over $940 million, representing 12% of the company-wide EBITDA for the year.

A Tough Comparison For The Studio Operations

We expect lower revenues from the company’s filmed entertainment division, as there was no big title released during the quarter. Home and Spy were the only two successful stories at the box-office but nowhere comparable to the prior year quarter hits such as X-Men: Days of Future Past, How To Train A Dragon 2 and Rio 2. Accordingly, we expect lower segment revenues in the June quarter. Moreover, currency headwinds should weigh over the studio’s bottom line. Having said that, the studio has a good lineup for the next few months, including Fantastic Four, Hitman: Agent 47 and Maze Runner: The Scorch Trials. These movies are expected to do well at the box-office and boost the company’s overall revenues. We currently estimate $2.25 billion in box-office revenues for Fox in 2015. However, if we account for licensing revenues and electronic sales, estimated revenues will be north of $10.75 billion. An estimated EBITDA margin of 16% will translate into EBITDA of $1.75 billion, representing a little under 25% of the company-wide EBITDA.

View Interactive Institutional Research (Powered by Trefis):

Global Large CapU.S. Mid & Small CapEuropean Large & Mid Cap
More Trefis Research

Notes:
  1. 21st Century Fox Investor Relations []
  2. FS1’s Q2 Viewership Up Big With New Programming, While MLB Net Sets New Record, Sports Business Daily, July 9, 2015 []
  3. Cable News Ratings Continue to Climb in 2015 — Except at MSNBC, The Hollywood Reporter, June 30, 2015 []
  4. Full 2014-15 TV Season Series Rankings: Football & ‘Empire’ Ruled, deadline, May 21, 2015 []