Key Takeaways From Fox’s Fiscal Q2 Earnings

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21st Century Fox (NYSE:FOX) announced mixed fiscal second quarter results, as its earnings per share came in ahead of expectations but revenue missed. The company’s overall revenue increased 4% year-over-year (y-0-y) to $7.6 billion, driven by growth in both the Cable Networks and Television segments, partially offset by lower revenues reported in the Filmed Entertainment segment. In addition, Fox’s total segment earnings before interest, taxes, depreciation, and amortization (EBITDA) grew to $1.9 billion, a 15% y-o-y increase from the prior year. From a bottom line perspective, the company reported adjusted income of $976 million, up 14% y-o-y, along with adjusted earnings of $0.53 per share, which increased 20% y-o-y.

In fiscal Q2, Fox News continued to see strong ratings, as Fox News finished 2016 as the most-watched cable network and achieved its highest-rated year in history. Additionally, live U.S. sports proved to be a key driver in the quarter, which drove the company’s strong advertising revenues. The seventh game of the World Series was the most-watched baseball game in a quarter-century, while the National League Divisional Series was the highest-rated week in Fox Sports 1’s history. To add to that, Fox also witnessed a 1.5% y-o-y increase in cumulative domestic subscribers on the back of subscriber additions at FXX, the FOX Business network, the National Geographic Channels, and FS 1.

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Fox News Aids in Growth Of Cable Networks

Fox News has been the highlight for the company amid an intense Presidential election season in the fourth quarter. Fox News was the most-watched basic cable network in the December quarter, and delivered year-over-year improvement in the key age 25-54 demographic. [1] The cornerstone of Fox News’ strength remained The O’Reilly Factor, which marked 192 months as the top cable news program with an average audience of 4.1 million. Moreover, The Kelly File also hit its own ratings-high in November with 3.4 million viewers. [2]

Fox’s Cable Networks revenue grew 7% y-o-y on solid gains in both affiliate and advertising revenues. In the second quarter, Cable network’s domestic affiliate fee revenue increased primarily due to higher average rates across all of its domestic brands. On the other hand, domestic advertising revenue increased primarily due to strong ratings at Fox News and pricing growth at FS1, driven by the Major League Baseball postseason, and from the consolidation of Nat Geo Partners.

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Television Boosts Q1 Results

In Q2, Fox’s Television revenues grew 12% y-o-y, while its EBITDA increased 35% over last year. The segment benefited from higher political advertising and double-digit re-transmission consent revenue growth. In addition, the company’s stations generated incremental revenues from permitting the use of some spectrum in one of its markets. However, the segment’s revenue growth was partially offset by higher sports and entertainment programming expenses at the network as well as higher promotion costs from the launch of new series.

Weak Quarter For Studio Operations

Fox’s revenue at the Filmed Entertainment segment declined 4% y-o-y to 2.3 billion, primarily due to difficult comparison against last year’s worldwide theatrical performance of the The Martian. However, this segment’s EBITDA grew 29% y-o-y, driven by lower marketing costs in the current year due to fewer theatrical releases versus last year. Fox studio grossed more than $315 million in the December quarter at the U.S. box-office, much lower than $471 million in the prior year quarter.

Future Outlook

Reuters’ compiled analyst estimates forecast revenues of $7.7 billion and earnings of $0.51 per share for Q3 2017, implying growth of about 7% and 9%, respectively.

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Notes:
  1. November 2016 Ratings: Fox News Has Most-Watched Month Since 2012, Adweek, Nov 30 2016 []
  2. Donald Trump’s Election Delivers Massive Ratings For Cable News, Forbes, December 2016 []