News Corp reports 2% increase in revenue, solid gains in book business following Harlequin purchase
NEW YORK, NY – February 5, 2015 — News Corporation reported financial results for the three months ended December 31, 2014.
Commenting on the results, Chief Executive Robert Thomson said:
“The development of the new News Corp continued apace in the second quarter as we began the transformation of the just acquired realtor.com®, which has certainly exceeded our expectations in traffic growth in recent weeks. We were clearly buffeted by currency headwinds, but the strength of our brands, the breadth of our reach, the intensifying focus on cost discipline and the power of our portfolio meant that we saw continued growth in revenue and increasing upside in our long-term prospects. Our digital personality has evolved quickly, with realtor.com® having given us a new and influential platform, digital subscribers on the rise at our news mastheads, robust growth at REA, and healthy e-book sales at HarperCollins. The vision we outlined for the company is becoming a reality, and while we have much work ahead, the foundations we have laid over the past 18 months put us in a strong position for enduring success and increased shareholder value.”
SECOND QUARTER RESULTS
The Company reported fiscal 2015 second quarter total revenues of $2.28 billion, a 2% increase as compared to prior year second quarter revenues of $2.24 billion. The majority of the revenue increase reflects strength in the Book Publishing and Digital Real Estate Services segments, partially offset by lower advertising revenues at the News and Information Services segment and negative foreign currency fluctuations. Adjusted revenues (as defined in Note 1) were flat compared to the prior year.
The Company reported second quarter Total Segment EBITDA of $328 million compared to $327 million in the prior year. These results include $13 million and $19 million in fees and costs – net of indemnification – related to the U.K. Newspaper Matters (as defined below) in the three months ended December 31, 2014 and 2013, respectively, as well as $16 million of one-time transaction costs in the second quarter of fiscal 2015 related to the acquisition of Move, Inc. (“Move”). Strong revenue performances in the Book Publishing and Digital Real Estate Services, combined with lower expenses related to the capitalization of Amplify Learning’s software development costs, were offset by declines at the News and Information Services segment and negative foreign currency fluctuations. Adjusted Total Segment EBITDA (as defined in Note 1) increased 4% compared to the prior year.
Net income available to News Corporation stockholders was $142 million as compared to $150 million in the prior year, primarily due to a higher effective tax rate and lower interest income. Adjusted net income available to News Corporation stockholders (as defined in Note 3) was $154 million compared to $179 million in the prior year. Impairment and restructuring charges were $17 million and $36 million in the three months ended December 31, 2014 and 2013, respectively.
Net income available to News Corporation stockholders per share was $0.24 as compared to $0.26 in the prior year. Adjusted EPS (as defined in Note 3) were $0.26 compared to $0.31 in the prior year.
Free cash flow available to News Corporation improved by $58 million in the six months ended December 31, 2014 to $275 million.
News and Information Services
Revenues for the second quarter of fiscal 2015 decreased $89 million, or 6%, compared to the prior year. Australian newspapers revenues declined 8% due to negative foreign currency fluctuations and modest advertising revenue declines. Total segment advertising revenues declined 9%, driven primarily by weaknesses in the UK print advertising market, lower revenue from free-standing insert products at News America Marketing and negative foreign currency fluctuations. The declines were partially offset by higher advertising revenues at Dow Jones, across the Wall Street Journal franchise. Circulation and subscription revenues declined 3%, due to the decline in professional information business revenues at Dow Jones and lower print circulation volume, partially offset by higher subscription pricing, cover price increases and higher digital subscription volume. Adjusted revenues declined 3% compared to the prior year.
Segment EBITDA decreased $39 million in the quarter, or 15%, as compared to the prior year. Results were impacted by lower advertising revenue at News UK and News America Marketing, $8 million of dual rent and other facility costs related to the relocation of the Company’s London operations, and $9 million of higher legal expenses at News America Marketing, partially offset by an increase at News Corp Australia due to lower expenses. Adjusted Segment EBITDA decreased 12% compared to the prior year.
Revenues in the quarter increased $78 million, or 20%, compared to the prior year driven by the inclusion of the results of Harlequin Enterprises Limited (“Harlequin”) and strong performances in Children’s and General Books resulting from higher backlist sales during the holiday season, which largely offset the lower revenues from the Divergent series. E-book revenues improved by 14% versus the prior year period, driven by Harlequin, and represented 17% of consumer revenues. Segment EBITDA increased $9 million, or 13%, from the prior year due to the higher revenues as discussed above, coupled with ongoing operational efficiencies and higher contribution to profits from e-books, offset in part by the lower contribution from the Divergent series. Adjusted revenues were flat and Adjusted Segment EBITDA decreased 4%, compared to the prior year.
Cable Network Programming
In the second quarter of fiscal 2015, revenues increased $2 million, or 2%, compared to the prior year primarily due to higher affiliate pricing and increased subscribers. Segment EBITDA in the quarter increased $1 million, or 2%, due to higher revenues, partially offset by negative foreign currency fluctuations and higher programming rights and production costs. Adjusted revenues increased 11% and Adjusted Segment EBITDA increased 9%, compared to the prior year.
Digital Real Estate Services
Revenues in the quarter increased $51 million, or 50%, compared to the prior year, primarily driven by the inclusion of the results of Move, coupled with higher residential listing depth product penetration and higher pricing at REA Group Limited (“REA Group”). Segment EBITDA in the quarter increased $2 million, or 4%, compared to the prior year primarily due to the increased revenues noted above, partially offset by $16 million of one-time transaction costs related to the acquisition of Move. Excluding the contributions from Move, divestitures and foreign currency fluctuations, Adjusted revenues and Adjusted Segment EBITDA increased 26% and 38%, respectively, compared to the prior year. In the second quarter, based on Move’s internal data, average monthly unique users of realtor.com®’s web and mobile sites grew 26% year-over-year to over 28 million, which was driven by more than 60% growth in mobile users; traffic accelerated in January to 37 million monthly unique users, or 33% growth year-over-year.
Revenues in the quarter were $22 million, which were flat compared with the prior year, as higher subscription revenues at Amplify Insight and higher revenues at Amplify Access were offset by lower Amplify Insight consulting revenues and lower revenues at Amplify Learning, related to the early grade print and hybrid learning products. Segment EBITDA in the quarter improved $20 million, or 45%, from the prior year, primarily due to the impact of the capitalization of Amplify Learning’s software development costs of $14 million and lower expenses.
Segment EBITDA in the quarter improved by $8 million compared to the prior year, primarily due to lower fees and costs, net of indemnification, related to the claims and investigations arising out of certain conduct at The News of the World (the “U.K. Newspaper Matters”) of approximately $6 million.
The net expense related to the U.K. Newspaper Matters was $13 million for the three months ended December 31, 2014 as compared to $19 million for the three months ended December 31, 2013.