21st Century Fox Gains From Higher Cable Ad Revenue

Revenue grew 7.1% Y-o-Y to $6.51 billion, beating projections of $6.49 billion

c121st Century Fox Inc. (NASDAQ: FOXA, FOX), the film and TV company controlled by Rupert Murdoch, announced its Q1 FY17 financial results on November 2nd, 2016.

The New York-based global media company engages in television broadcasting and film production. It operates through four segments: Cable Network Programming, Filmed Entertainment, Television, and Other, Corporate and Eliminations. The Cable Network Programming segment produces and licenses programs that are distributed through cable television systems and direct broadcast satellite operators primarily in the U.S., Latin America, Europe, and Asia. The Filmed Entertainment segment engages in the production and acquisition of live-action and animated motion pictures for distribution and licensing in all formats in all entertainment media worldwide and the production and licensing of television programming worldwide.

The Television segment consists of the broadcasting of network programming in the U.S. and the operation of broadcast television stations. The Other, Corporate and Eliminations segment consists of corporate overhead and eliminations and other businesses. The Company holds interests in Sky PLC, an entertainment and communications provider. The Company also holds interests in Hulu, Tata Sky Limited, and Vice Holdings Inc. Read more about 21st Century Fox’s financial results below.

Q1 FY17 financial highlights

c2During Q1 FY17, 21st Century Fox, whose properties include the Fox television network, cable channels such as Fox News, and the 20th Century Fox studio, reported a 7.1% Y-o-Y growth in total revenue to $6.51 billion, beating projections of $6.49 billion, versus $6.08 billion in the prior year quarter. The revenue growth reflects higher affiliate and advertising revenues generated from the Cable Network Programming segment and higher content revenues generated at the Filmed Entertainment segment. The adverse impact of foreign exchange rates impacted Q1 FY17 revenue by $77 million.

During Q1 FY17, total segment operating income before depreciation and amortization (OIBDA) grew by $256 million, or 17%, to $1.79 billion from $1.54 billion reported in the prior year’s quarter. This increase was due to higher contributions from both the Company’s Filmed Entertainment and Cable Network Programming segments. The adverse impact of foreign exchange rates impacted quarterly OIBDA growth by $42 million, or 3% in total.

As a result, income from continuing operations in Q1 FY17 rose to $827 million, or $0.44 per share, compared to $678 million, $0.34 per share, reported in the prior year’s quarter. Excluding the net income effects of Other, net and adjustments to equity earnings of affiliates, including adjustments related to Sky PLC and Endemol Shine Group, adjusted EPS from continuing operations was $0.51 versus $0.38 reported in the year-ago period.

The results came two weeks after AT&T Inc. (NYSE: T), the largest phone company in the U.S., reached an agreement to buy Time Warner (NYSE: TWX) for $85.4 billion on October 23rd, 2016. Time Warner had earlier rejected an $80 billion offer from Fox in 2014.

Segmental highlights

Cable Network Programming: During Q1 FY17, this segment’s OIBDA grew 6% to $1.38 billion, driven by a 10% revenue increase on higher affiliate and advertising revenues, but partially offset by a 12% increase in expenses. The higher expenses were primarily due to higher international sports programming costs in Latin America and India and higher entertainment programming costs at FX Networks. The segment results also included revenue and costs of approximately $85 million related to the inclusion of results from the National Geographic non-channels businesses, which were acquired in November 2015. Foreign exchange fluctuations, primarily in Latin America, adversely impacted OIBDA growth by 2%.

c3Domestic affiliate revenue grew 8% during Q1 FY17, reflecting continued contractual rate increases at FX Networks, FS1, and Fox News Channel. Domestic advertising revenue grew 6% over the prior year’s period due to higher ratings and pricing at Fox News. Domestic OIBDA contributions jumped 9% Y-o-Y due to higher contributions from FS1 and Fox News.

International affiliate revenue rose 8% driven by strong local currency growth of 16%, with double digit growth reported at both Fox Networks Group International (FNGI) and STAR India, partially offset by negative currency impacts from the strengthening U.S. dollar. International advertising revenue increased 6% as local currency growth of 11% led by STAR India, but was partially offset by negative currency impacts from the strengthening U.S. dollar. Quarterly OIBDA at the international cable channels fell 7% Y-o-Y due to higher sports programming costs at FNGI and STAR India due to the broadcast of the Rio Olympics and the negative impact of foreign exchange.

Filmed Entertainment: During Q1 FY17, this segment’s OIBDA more than doubled to $311 million from $149 million in the year-ago quarter, mainly due to increased contributions from the film studio reflecting lower theatrical releasing costs, the worldwide theatrical performance of “Independence Day: Resurgence”, the home entertainment performance of “Deadpool” and higher contributions from the television production business led by the subscription video-on-demand licensing of “Homeland” to Hulu LLC. Revenues increased $122 million to $1.91 billion, primarily reflecting higher television production revenue.

Television: During Q1 FY17, this segment’s OIBDA fell 3% to $191 million versus the prior year’s period. Revenues also declined 1% due to lower advertising revenues due to the absence of the prior year broadcasts of the Emmy Awards and the FIFA Women’s World Cup final. These negatives were offset by higher retransmission consent revenues, higher local political advertising spend at TV stations and higher content revenues at FOX Broadcast Network.

Quarterly equity earnings of affiliates amounted to $35 million were flat versus the year-ago period, as improved results at Endemol Shine Group and Tata Sky were offset by lower equity earnings for Sky and increased losses at Hulu. The decrease in equity earnings from Sky was a result of the strengthening of the U.S. dollar against the Pound Sterling.

Other highlights

c4Share repurchases: On August 3rd, 2016, the company’s Board of Directors authorized the repurchase of an additional $3 billion of Class A Common Stock, excluding commissions. During Q1 FY17, the Company repurchased 16 million shares of Class A Common Stock for $410 million. As a result, diluted weighted average common stock outstanding of 1.86 billion declined 7% from the 2.01 billion in the prior year. As of the end of Q1 FY17, the Company’s remaining buyback authorization was $3.2 billion representing approximately $240 million under FY16 authorization and $3 billion under FY17 authorization.

Exit of top brass: Roger Ailes, head of the highly profitable Fox News Channel, resigned in July 2016 amid allegations of sexual harassment, including one case the company settled for a reported $20 million.

c5Tim Carry, executive vice president for distribution at Fox News, is stepping down after two decades, the company said on November 1st, 2016. Carry has been involved in every carriage deal for Fox News Channel and Fox Business Network since their launches in 1996 and 2007, respectively. Fox News generates approximately 20% of 21st Century Fox’s operating income, and the fees that cable and satellite operators pay to carry Fox News are a large part of that cash flow.

c6Appointment of new CTO: On October 31st, 2016, 21st Century Fox announced that it has appointed Paul Cheesbrough, formerly CTO of Rupert Murdoch’s News Corp (NASDAQ: NWS), as chief technology officer overseeing the media conglomerate’s tech, platforms and systems worldwide from December 1st, 2016. Cheesbrough will report to executive chairman Lachlan Murdoch and CEO James Murdoch in the newly created position. He will be based at the New York City headquarters. Reporting to Cheesbrough in his new role will be the enterprise technology leaders from Fox Networks Group, Twentieth Century Fox Film, and Fox News Channel.

c7Hulu announces new deals: On November 1st, 2016, Hulu announced new deals with two of its parents, 21st Century Fox and The Walt Disney Co. (NYSE: DIS), for more than 35 networks including ESPN that will be available live and on-demand on Hulu’s forthcoming TV service. Set to debut in early 2017, Hulu’s new TV streaming service will include Fox’s entertainment, news, sports and non-fiction services, as well as Disney’s portfolio of networks from Disney/ABC Television Group and ESPN.

Stock Performance

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21st Century Fox’s stock finished the day at $27.71, gaining 7.28%, at the close on Thursday, November 3rd, 2016, having vacillated between an intraday high of $27.84 and a low of $26.70 during the session. The stock’s trading volume was at 28,811,195 for the day. The Company’s market cap was at $50.01 billion as of Thursday’s close.

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