Key Takeaways From Fox’s Fiscal Q3 Earnings

21^st Century Fox‘s (NYSE:FOX) stock slid slightly after a mixed fiscal third quarter earnings report, as its earnings came in ahead of market expectations but revenues missed. The company’s overall revenue increased 5% year-over-year (y-0-y) to $7.6 billion, driven by higher advertising revenues at the Television segment and affiliate revenue growth at the Cable Networks segment. However, this growth in revenues was partially offset by lower content revenues at the Filmed Entertainment segment.

The increase in advertising revenue (16%) was primarily due to revenues resulting from the broadcast of Super Bowl LI in February 2017 and higher ratings at Fox News Channel. However, this was partially offset by the lower entertainment ratings at Fox Broadcasting Company, absence of the broadcast of the ICC World Twenty20 matches in fiscal 2016 and the effect of the Indian government’s demonetization initiatives on the general advertising market in India.

Fox News continued to be the bright spot for the company, as the news channel had the best quarter in cable news history for 24-hour viewership, beating even the fourth quarter of 2016, which included the U.S. Presidential election. The news channel delivered the most watched quarter in total day viewers, representing a 27% y-o-y gain in overall viewership, and a 32% y-o-y growth among the key 25 to 54 year-old demographic. ^[1]

On the cost side, the company’s operating expenses increased 7% y-o-y, primarily due to higher programming rights amortization at the Cable Network Programming and Television segments, including Super Bowl LI. Moreover, the media company’s selling, general and administrative expenses decreased 2% y-o-y, due to lower compensation expense. From a bottom line perspective, Fox posted adjusted earnings of 54 cents per share, up 15% y-o-y, which also beat analysts’ expectations by 6 cents in the third quarter.

Cable Networks Continues To Grow In Q3

In Q3, Fox’s Cable Networks revenues grew 2% y-o-y, while its EBITDA increased 5% over last year. The segment benefited from higher affiliate revenues in the quarter, primarily attributable to higher average rates per subscriber across most channels.

Domestic cable revenues increased 6% y-o-y, led by affiliate fee growth of 8%. While the domestic advertising revenues were equal to the prior year as increases from the ratings strength at Fox News and FS1 were offset by reductions from the non-channel businesses at Nat Geo Partners. However, the segment’s international cable revenues declined 7% y-o-y, as low advertising and syndication revenues were partially offset by 5% affiliate fee growth in this quarter.

Television Boosts Q3 Results

In Q3, Fox’s Television revenues grew 30% y-o-y, while its EBITDA increased 52% over last year. The segment benefited from the broadcast of the Super Bowl and continued retransmission consent revenue growth, partially offset by the impact of lower prime-time entertainment ratings from the absence of American Idol.

Weak Quarter For Studio Operations

Fox’s revenue at the Filmed Entertainment segment declined 3% y-o-y to 2.2 billion, primarily due to difficult comparison against last year’s worldwide theatrical release of Deadpool and the home entertainment release of The Martian. Moreover, the segment’s EBITDA declined 21% y-o-y, driven by the revenue decreases and higher production amortization and participation costs in the current year due to fewer theatrical releases versus last year. Fox studio grossed more than $448 million in the March quarter at the U.S. box-office, much lower than the $754 million in the prior year quarter.

Going forward, these difficult comparisons are expected to continue into the fourth quarter as well, due to ongoing strength of these films in 2016, as well as from the quarterly timing of spot sales and reduced syndication sales compared to last year’s fourth quarter.

Future Outlook

Reuters’ compiled analyst estimates forecast revenues of $6.94 billion and earnings of $0.42 per share for Q4 2017, implying growth of about 4% and (7)%, respectively.

Have more questions on 21st Century Fox? Please refer to our complete analysis for 21st Century Fox 

See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology

1. Fox News Press Release [↩]