Key Takeaways From Fox’s Q3 Earnings

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21st Century Fox
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21st Century Fox (NYSE: FOX) reported mixed fiscal third quarter results, as its revenues came in ahead of market expectations but earnings per share missed. In Q3, the company’s overall revenue declined 2% year-over-year (y-0-y) to $7.4 billion, driven largely by declines in the Television and Filmed Entertainment segments, partially offset by gains in the Cable Networks. The company faced a difficult comparison to the prior year quarter which featured the Super Bowl. The company’s selling, general and administrative expenses increased 17% y-o-y, due to higher compensation expenses. The company’s net income grew 7% y-o-y to $858 million. However, Fox posted adjusted earnings of 49 cents per share, down 9% y-o-y.

 

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Cable Networks Continues To Grow In Q3

In Q3, Fox’s Cable Networks revenues grew 10% y-o-y, and its EBITDA increased 16% over last year, on the back of higher affiliate, syndication and advertising revenues. Fox News remained the most-viewed cable network for the March quarter in both primetime and total day, its second year in a row on top of the ratings. However, the news network was down 13% y-o-y in total viewers and also down 14% y-o-y in demo viewers during prime time. In addition, Fox news viewership also declined 16% y-o-y in total viewers in total day. This was largely due to a difficult comparison to the network’s March quarter last year, which was Fox News’ most-watched quarter ever.

Studio Saw Weak Results

Fox’s Filmed Entertainment operating income declined 23% y-o-y to $286 million. Theatrical revenues from the worldwide release of its holiday slate including The Greatest Showman, 3 Billboards Outside Ebbing, Missouri, and The Shape of Water were similar to a year ago. However, the results were impacted by costs related to the production of new drama series and the lack of on-demand streaming revenues from The People v. O.J. Simpson: American Crime Story.

Television Revenues Decline Due To Difficult Y-O-Y Comparison To Super Bowl Games

In Q3, Fox’s Television segment EBITDA declined 59% y-o-y to $78 million, largely due to the absence of contributions from last year’s Super Bowl. However, lower NFL results this year from the advertising revenue impact of reduced postseason ratings and three fewer games than last year were offset by higher contributions from double-digit retransmission content revenue growth and improved entertainment results.

Interesting Development In The Fox-Disney Deal

Fox had agreed to sell most of its cable and studio assets to Disney in a $52.4 billion deal and was looking to acquire the shares of Sky it doesn’t already own. However, Comcast is reportedly planning to challenge this deal with a $60 billion all-cash offer for the Fox assets. In fact, Comcast had also launched a separate bid for Sky last month, indicating an overlapping of bids for Sky between Fox and Comcast.

FY 2018 Outlook

We expect Fox’s revenues to be driven by the Cable Networks Programming segment. We also expect the company’s Filmed Entertainment revenues to stabilize in the fourth quarter with the release of Deadpool 2. Overall we estimate total revenues of $30.1 billion and earnings per share of $1.79 in FY 2018 for the company.

 

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