News Corp records Q2 loss due to impairment charges, declines in newspaper advertising revenue
The publishing company News Corp (its broadcast and film are now called 21st Century Fox) recorded an ugly second quarter earnings report, impacted by non-cash charges and an impairment of the print-related assets at the company’s Australian newspaper business.
News Corp is a more diversified media company than many other newspaper chains, despite the spinning off of film and TV properties. Still, the newspaper side accounts for the most revenue, and it saw total revenue fall 7 percent in the last quarter.
The book publishing side grew 4 percent, but the best performing area remains digital real estate services, a segment it bought into with the acquisition of Move – it grew 16 percent. Still, newspapers account for over 60 percent of the business, and it is shrinking.
Here is the earnings press release:
NEW YORK, NY – February 9, 2017 — News Corporation today reported financial results for the three months ended December 31, 2016.
Commenting on the results, Chief Executive Robert Thomson said:
“In the second quarter, we saw the efficacy of our strategic reinvestment and digital diversification. Both were evident in our significantly increased operating profitability in the quarter, despite continued headwinds in print advertising. Results were driven by strong performance at our Digital Real Estate Services segment and meaningful revenues at HarperCollins, along with appropriate and ongoing management of the cost base at our news mastheads.
Our core platform has been bolstered by our rapid expansion in digital real estate, which is well on the way to becoming the largest contributor to our profitability. This segment posted another very strong quarter, with a 16% year-over-year revenue increase, improved margins and robust audience gains.
This quarter’s results were impacted by non-cash charges because of a change in the carrying value of Foxtel and an impairment of the print-related fixed assets at our Australian newspaper business.
In News and Information Services, we are assertively transitioning to digital, now accounting for 27% of segment revenues, up from 22%. We are especially confident in the value of our news brands, given growing consumer demand for accurate and timely journalism. In fact, the Wall Street Journal now has over 2.1 million paid subscribers and, for the first time, more than 50% of those subscribers are digital.
Audiences are craving integrity, which is why so many of our mastheads have reported strong growth in readers and subscribers this quarter. And advertisers need a trusted canvas and real results, not the muddled, muddied metrics of many digital platforms.”
SECOND QUARTER RESULTS
The Company reported fiscal 2017 second quarter total revenues of $2.12 billion, compared to $2.16 billion in the prior year period. Reported revenues reflect a negative impact from foreign currency fluctuations of $53 million. Adjusted Revenues (which exclude the foreign currency impact and acquisitions and divestitures as defined in Note 1) decreased 1% compared to the prior year, as growth in the Digital Real Estate Services and Book Publishing segments was more than offset by lower advertising revenues at the News and Information Services segment.
(Loss) income from continuing operations for the quarter was ($219) million as compared to $106 million in the prior year. The current year’s quarter includes a pre-tax non-cash impairment charge of $310 million, primarily related to the write-down of the fixed assets at the Australian newspapers, and lower equity earnings of affiliates, primarily driven by a $227 million pre-tax non-cash write-down related to the adjustment of the carrying value of the Company’s investment in Foxtel to fair value. The aggregate tax benefit on the impairment and write-down was $121 million. These charges were partially offset by a gain of $120 million ($103 million, net of tax) from the sale of REA Group’s European businesses and higher Total Segment EBITDA, as discussed below.
The Company reported second quarter Total Segment EBITDA of $325 million, compared to $280 million in the prior year. Adjusted Total Segment EBITDA (as defined in Note 1) was 14% higher compared to the prior year, primarily due to the continued growth in the Digital Real Estate Services and Book Publishing segments and lower programming rights costs at the Cable Network Programming segment.
(Loss) income per share from continuing operations available to News Corporation stockholders was ($0.50) as compared to $0.15 in the prior year.
Adjusted EPS (as defined in Note 3) were $0.19 compared to $0.20 in the prior year.
News and Information Services
Revenues in the quarter were lower by $97 million, or 7%, compared to the prior year. Adjusted Revenues were 5% lower compared to the prior year.
Advertising revenues decreased 9%, or 8% excluding a $12 million impact from negative foreign currency fluctuations, primarily due to weakness in the print advertising market. The decrease was partially offset by the $22 million from the inclusion of Wireless Group and higher in-store and digital product revenues at News America Marketing.
Circulation and subscription revenues decreased 5%, but increased 1% excluding a $28 million impact from negative foreign currency fluctuations, due to higher subscription pricing, selected cover price increases in the U.K. and Australia and higher paid digital subscribers, partially offset by lower print volume.
Segment EBITDA decreased $16 million in the quarter, or 10%, as compared to the prior year, driven by the lower advertising revenues noted above and $8 million of investment spending in connection with Checkout 51, partially offset by lower expenses across the businesses.
Digital revenues represented 27% of segment revenues in the quarter, compared to 22% in the prior year. At Dow Jones, digital revenues represented 53% of total revenues in the quarter. Digital subscribers and users across key properties within the News and Information Services segment are summarized below:
- The Wall Street Journal average daily digital subscribers in the three months ended December 31, 2016 were 1,080,000, compared to 828,000 in the prior year (Source: Internal data)
- Closing digital subscribers at News Corp Australia’s mastheads as of December 31, 2016 were 309,200, compared to 255,800 in the prior year (Source: Internal data; adjusted for divested mastheads)
- The Times and Sunday Times closing digital subscribers as of December 31, 2016 were 184,000, compared to 172,000 in the prior year (Source: Internal data)
- The Sun’s digital offering reached approximately 61 million global monthly unique users in December 2016, based on ABCe (Source: Omniture)
Revenues in the quarter increased $20 million, or 4%, compared to the prior year, primarily due to the continued popularity of Jesus Calling and Jesus Always by Sarah Young and Hillbilly Elegy by J.D. Vance, strong sales from frontlist titles such as The Magnolia Story by Chip and Joanna Gaines, Chaos by Patricia Cornwell, The Midnight Gang by David Walliams and Settle for More by Megyn Kelly, as well as the continued expansion of HarperCollins’ global footprint. Digital sales increased 3% compared to the prior year and represented 16% of Consumer revenues for the quarter. Segment EBITDA for the quarter increased $18 million, or 32%, from the prior year, primarily due to higher revenues as discussed above.
Digital Real Estate Services
Revenues in the quarter increased $34 million, or 16%, compared to the prior year, primarily due to the continued growth at REA Group and Move, as well as $9 million from the acquisitions of iProperty and Diakrit. Adjusted Revenues increased 10%. Segment EBITDA in the quarter increased $22 million, or 30%, compared to the prior year, primarily due to the higher revenues noted above, the positive impact of foreign currency fluctuations at REA Group and lower legal costs at Move. REA Group and Move contributed $12 million and $10 million, respectively, to the increase in Segment EBITDA.
In the quarter, revenues at REA Group increased 19%, or 14% excluding a $6 million impact from favorable foreign currency fluctuations, due to an increase in Australian residential depth revenue, as a favorable product mix and pricing increase offset lower listing volumes, and the acquisition of iProperty.
Move’s revenues in the quarter increased 7% to $93 million from $87 million in the prior year, primarily due to the continued growth in its Connection for Co-BrokerageSM product and non-listing Media revenues. The growth was partially offset by a $3 million decline in revenue at TigerLead®, which was sold in November 2016. Based on Move’s internal data, average monthly unique users of realtor.com®’s web and mobile sites for the fiscal second quarter grew 14% year-over-year to approximately 44 million.
Cable Network Programming
Revenues in the quarter decreased $2 million, or 2%, compared to the prior year due to lower affiliate and advertising revenues, partially due to the absence of the uplift from the Rugby World Cup, which was held in the prior year. Segment EBITDA in the quarter increased $12 million, or 31%, compared with the prior year, due to lower programming rights costs from the absence of Rugby World Cup and English Premier League rights. Adjusted Revenues and Adjusted Segment EBITDA, which exclude the impact from favorable foreign currency fluctuations, decreased 5% and increased 23%, respectively.