August 10, 2017 Last Updated 9:38 am

News Corp records $740M loss for full year fiscal 2017, partially due to impairment charges

Revenue fell 2 percent for the full year, led by a 5 percent decline in News division, with Digital Real Estate again being the bright spot, revenue up 14 percent on the year

Earlier this week I mistakenly said, when Time Inc. released its disappointing earnings, that earnings season was over for the major publishing companies. That wasn’t true, as News Corp reported its fourth quarter earnings after the bell today.

The earnings were a mixed bag, with the News & Information Services reporting a 10 percent decline in revenue for the quarter, 5 percent for the year, but Digital Real Estate Services up 10 percent for the quarter, 14 percent for the year.

tabloids

But investors are taking the News Corp stock down hard in after-hours trading because of its bottom line: a loss of $738 million for the year ($740 million after adjustments for preferred stock dividends). Right now, the stock is down about 3.5 percent.

Like many earnings reports, this one needs to be looked at closely to explain the numbers. The loss is in large measure due to pre-tax non-cash impairment charges of approximately $785 million. Murdoch, it seems, is writing down the value of his U.K. and Australian newspapers.

News Corp, as I’ve said before, is one of the few diversified companies in the newspaper business. When you add in News America Marketing, Harper Collins, and Move (Realtor.com), you can see that it looks very much like a balanced company, one that might just be able to continue publishing newspapers into the future, instead of selling out to New Media Investment Group or Gannett. Too bad, of course, the newspapers print such trash.

Here is the Q4 earnings report from News Corp.:


NEW YORK, NY — August 10, 2017 — News Corporation today reported financial results for the three months and fiscal year ended June 30, 2017 (includes 13 and 52 weeks, respectively, compared to 14 and 53 weeks in the three months and fiscal year ended June 30, 2016, respectively).

“Fiscal 2017 was a significant year for News Corp as we saw tangible improvement in profitability, powered by the fast-growing Digital Real Estate Services segment, and we charged a premium for premium content while focusing on operating efficiencies.

News Corp led the global debate about content value and values, prompting the digital platforms to address a dysfunctional content eco-system, in which the fake and the fraudulent have flourished. We are now in advanced discussions with those platforms over the creation of payment mechanisms for news of verified veracity.

Move, the operator of realtor.com, and REA Group continue to post record revenues driven by higher traffic and improved yields.Digital real estate overall accounted for nearly 40% of our profits and we expect to expand earnings in coming years as the sector is still at a relatively early stage of its e-evolution.

HarperCollins posted higher EBITDA and margins this year through poignant books with broad appeal in the U.S., such as The Magnolia Story and Hillbilly Elegy. We believe that the emergence of digital audio and our expanding global footprint are potent sources of long-term growth.

FOX SPORTS Australia reinforced its leadership in Australia with the successful launch of the Fox League Channel and by extending its domestic soccer rights for another six years. Foxtel and FOX SPORTS Australia are capitalizing on the growing SVOD market with the recent rollout of its rebranded Foxtel Now streaming service, which has been well received and is improving subscriber volume.”

FULL YEAR RESULTS FROM CONTINUING OPERATIONS

The Company reported fiscal 2017 full year total revenues of $8.14 billion, a 2% decline as compared to the prior year revenues of $8.29 billion. The decline reflects lower print advertising revenues at the News and Information Services segment, a $147 million negative impact from foreign currency fluctuations and the absence of $112 million from the additional week in the prior year, partially offset by strong growth in the Digital Real Estate Services segment and the acquisitions of Wireless Group plc (“Wireless Group”) and Australian Regional Media (“ARM”).

(Loss) income from continuing operations was ($643) million for fiscal 2017 as compared to $235 million in the prior year. The decline was driven by pre-tax non-cash impairment charges of approximately $785 million, primarily related to the write-down of fixed assets at the U.K. and Australian newspapers. The decline was also due to lower equity earnings of affiliates, primarily from a $227 million pre-tax non-cash write-down of the Company’s investment in Foxtel, and higher tax expense, due in large part to the release of U.S. tax asset valuation allowances associated with the divestiture of Amplify in the prior year. These charges were partially offset by a gain of $107 million ($91 million, net of tax) from the sale of REA Group’s European businesses and higher Total Segment EBITDA, as discussed below.

The Company reported full year Total Segment EBITDA of $885 million, a 29% increase as compared to $684 million in the prior year. Total Segment EBITDA in the prior year included a one-time charge of $280 million for the settlement of litigation and related claims at News America Marketing (the “NAM Group settlement charge”) and a one-time gain of $122 million for the settlement of the Zillow litigation. Excluding these items, full year Total Segment EBITDA for fiscal 2016 would have been $842 million. Adjusted Total Segment EBITDA (as defined in Note 1), which excludes the impact of the settlements noted above, as well as the other items described in Note 1, increased 5% compared to the prior year, as strong growth at the Digital Real Estate Services segment and improvement in the Book Publishing segment were partially offset by the declines at the News and Information Services segment.

Earnings per share from continuing operations available to News Corporation stockholders were ($1.27) for the full year as compared to $0.28 in the prior year.

Adjusted EPS (as defined in Note 3) were $0.36 compared to $0.40 in the prior year.

FOURTH QUARTER RESULTS FROM CONTINUING OPERATIONS

The Company reported fiscal 2017 fourth quarter total revenues of $2.08 billion, a 7% decline as compared to $2.23 billion in the prior year period. The decline reflects the $112 million impact from the additional week in the prior year quarter, lower print advertising revenues at the News and Information Services segment and a $37 million negative impact from foreign currency fluctuations, partially offset by continued strong performance at the Digital Real Estate Services segment and the acquisitions of ARM and Wireless Group.

(Loss) income from continuing operations for the quarter was ($424) million as compared to $114 million in the prior year. The decrease was primarily due to a pre-tax non-cash impairment charge of $464 million, mainly related to the write-down of fixed assets at the U.K. newspapers. The decline was also driven by lower Total Segment EBITDA, as discussed below, which reflects the absence of a one-time pre-tax gain of $122 million ($75 million, net of tax) related to the Zillow litigation settlement in the prior year quarter, and lower equity earnings of affiliates, primarily related to the loss resulting from the change in the fair value of Foxtel’s investment in Ten Network Holdings. The decline was partially offset by lower tax expense compared to the prior year quarter, which was driven by the absence of the tax expense associated with the Zillow litigation settlement in the prior year and the benefits from the aforementioned impairment charges, partially offset by the resolution of certain tax matters in a foreign jurisdiction. The decline was also offset by lower depreciation and amortization and higher contribution from Other, net.

The Company reported fourth quarter Total Segment EBITDA of $215 million, a decline of 40% compared to $361 million in the prior year. Prior year Total Segment EBITDA included the $122 million settlement gain mentioned above. Adjusted Total Segment EBITDA, which excludes that settlement gain and the other items described in Note 1, declined 11% compared to the prior year, primarily due to lower revenues at the News and Information Services and Book Publishing segments and the absence of the additional week in the prior year quarter, partially offset by continued growth in the Digital Real Estate Services segment.

Earnings per share from continuing operations available to News Corporation stockholders were ($0.74) as compared to $0.16 in the prior year.

Adjusted EPS were $0.11 compared to $0.10 in the prior year.

News Corp earnings

News and Information Services

Full Year Segment Results

Fiscal 2017 full year revenues decreased $269 million, or 5%, compared to the prior year.

Advertising revenues declined $202 million, or 7%, to $2.61 billion, reflecting weakness in the print advertising market, the $33 million impact from the absence of the additional week in the prior year and $28 million of negative impact from foreign currency fluctuations. Excluding the impact of negative foreign currency fluctuations and the additional week, advertising revenues would have declined 5%.

Circulation and subscription revenues declined $97 million, or 5%, to $2.01 billion, reflecting $88 million of negative impact from foreign currency fluctuations and the $39 million impact from the absence of the additional week in the prior year. Excluding the impact of negative foreign currency fluctuations and the additional week, circulation and subscription revenues would have increased 1%.

Full year Segment EBITDA increased $200 million, or 93%, as compared to the prior year. The prior year’s results included the NAM Group settlement charge of $280 million. Adjusted Segment EBITDA, which excludes that settlement charge and the other items described in Note 1, decreased 14% compared to the prior year, driven by lower contributions across the newspaper businesses. The decline was partially offset by lower costs due to ongoing cost initiatives, combined with savings from lower print volume.

Fourth Quarter Segment Results

Revenues in the quarter declined $136 million, or 10%, compared to the prior year, primarily due to the absence of $77 million from the additional week in the prior year period.

Advertising revenues declined $86 million, or 12%, to $650 million due to weakness in the print advertising market, the $33 million impact from the absence of the additional week in the prior year, lower in-store product revenues at News America Marketing due to a shift in timing between the third and fourth quarter and an $8 million negative impact from foreign currency fluctuations. The decline was partially offset by $22 million from the acquisition of ARM and $20 million from the acquisition of Wireless Group. Excluding the impact of negative foreign currency fluctuations and the absence of an additional week, advertising revenues would have declined 6%.

Circulation and subscription revenues declined $50 million, or 9%, to $511 million due to the $39 million impact from the absence of the additional week in the prior year, the $18 million impact from negative foreign currency fluctuations and lower print volume. Excluding the impact of negative foreign currency fluctuations and the absence of the additional week, circulation and subscription revenues would have increased 1% due to higher subscription pricing, selected cover price increases as well as healthy contribution from Dow Jones, which saw a 10% increase in its circulation revenues, led by The Wall Street Journal.

Segment EBITDA for the quarter declined $57 million, or 36%, compared to the prior year. The decline was driven by lower advertising revenues across the businesses, the timing shift at News America Marketing and the absence of the additional week, partially offset by lower expenses due to volume declines and ongoing cost efficiencies.

Digital revenues represented 26% of segment revenues in the quarter, compared to 23% in the prior year; for the quarter, digital revenues for Dow Jones and the newspaper mastheads represented 30% of their revenues. Digital subscribers and users across key properties within the News and Information Services segment are summarized below:

  • The Wall Street Journal average daily digital-only subscribers in the three months ended June 30, 2017 were 1,270,000, compared to 948,000 in the prior year (Source: Internal data)
  • Closing digital subscribers at News Corp Australia’s mastheads as of June 30, 2017 were 363,600 (including ARM), compared to 271,000 in the prior year (Source: Internal data; adjusted for divested mastheads)
  • The Times and Sunday Times closing digital-only subscribers as of June 30, 2017 were 201,000, compared to 182,500 in the prior year (Source: Internal data)
  • The Sun’s digital offering reached 85 million global average monthly unique users in June 2017, compared to 42 million in the prior year, based on ABCe (Source: Omniture)

Book Publishing

Full Year Segment Results

Fiscal 2017 full year revenues declined $10 million, or 1%, compared to the prior year, as strong sales of both frontlist and backlist titles, such as Hillbilly Elegy by J.D. Vance, The Magnolia Story by Chip and Joanna Gaines and Jesus Calling and Jesus Always by Sarah Young, as well as the continued expansion of HarperCollins’ global footprint, were offset by the absence of sales of Harper Lee’s Go Set a Watchman, the negative impact from foreign currency fluctuations and the $19 million impact from the absence of the additional week in the prior year. Digital sales represented 19% of Consumer revenues for fiscal 2017, which was consistent with the prior year. Full year Segment EBITDA increased $14 million, or 8%, from the prior year primarily due to the mix of titles as compared to the prior year.

Fourth Quarter Segment Results

Revenues in the quarter declined $26 million, or 6%, compared to the prior year, driven by $19 million from the absence of the additional week in the prior year, the negative impact from foreign currency fluctuations and lower sales at the Children’s division, which had bigger title releases in the prior year. The decline was partially offset by strong sales at the General Books division, driven by Dragon Teeth by Michael Crichton, The Subtle Art of Not Giving a F*ck by Mark Manson, Hillbilly Elegy by J.D. Vance and The Force by Don Winslow. Digital sales represented 20% of Consumer revenues for the quarter, compared to 19% in the prior year. Segment EBITDA declined $11 million, or 22%, from the prior year due to the factors noted above, higher employee related expenses and higher royalty costs related to certain new releases in the fiscal year.

Digital Real Estate Services

Full Year Segment Results

Fiscal 2017 full year revenues increased $116 million, or 14%, compared to the prior year, primarily due to higher revenues at REA Group and Move, partially offset by REA Group’s divestiture of its European business and Move’s sale of its TigerLead® product. Segment EBITDA declined $20 million, or 6%, compared to the prior year, primarily due to the absence of the one-time gain of $122 million related to the settlement of the Zillow litigation at Move in the prior year. Adjusted Segment EBITDA, which excludes the settlement gain and the other items described in Note 1, increased 44%, driven by higher revenues and lower legal costs at Move, partially offset by increased costs related to the higher revenues and increased marketing expenses.

In the fiscal year, revenues at REA Group increased 14% to $525 million from $459 million in the prior year, driven by greater listing depth product penetration and the $18 million impact from positive foreign currency fluctuations, partially offset by an $18 million, or 4%, decline in revenue associated with the sale of REA Group’s European business in December 2016.

Move’s revenues in the fiscal year increased 10% to $394 million from $357 million in the prior year, primarily due to the strength in its ConnectionsSM for Buyers product, as well as growth in non-listing Media revenues, partially offset by a $12 million, or 3%, decline in revenue associated with the sale of TigerLead® in November 2016 and a $6 million, or 2%, impact from the absence of the additional week in the prior year.

Fourth Quarter Segment Results

Revenues in the quarter increased $22 million, or 10%, compared to the prior year, primarily due to the continued growth at REA Group and Move. The growth was partially offset by the $10 million and $4 million impacts from REA Group’s divestiture of its European business and Move’s sale of its TigerLead® product, respectively. Segment EBITDA in the quarter was $87 million, a 50% decline compared to $175 million in the prior year. The decline in Segment EBITDA was primarily due to a one-time gain of $122 million related to the settlement of the Zillow litigation at Move in the prior year, which more than offset the higher revenues noted above and lower legal costs at Move. Adjusted Revenues (as defined in Note 1) and Adjusted Segment EBITDA increased 16% and 67%, respectively.

In the quarter, revenues at REA Group increased 7% to $135 million from $126 million in the prior year due to an increase in Australian depth revenue, driven by favorable product mix and pricing increases. The growth was partially offset by the $10 million, or 8%, decline in revenue resulting from the sale of its European business.

Move’s revenues in the quarter increased 10% to $108 million from $98 million in the prior year, primarily due to the continued growth in its ConnectionsSM for Buyers product and non-listing Media revenues. The growth was partially offset by the $6 million impact from the absence of the additional week in the prior year period and a $4 million decline in revenue associated with the sale of TigerLead®. Excluding the impact of the items mentioned above on the prior year period, Move’s revenues would have increased by $20 million, or 23%. Based on Move’s internal data, average monthly unique users of realtor.com®’s web and mobile sites for the fiscal fourth quarter grew 9% year-over-year to approximately 58 million.

Cable Network Programming

Full Year Segment Results

Fiscal 2017 full year revenues increased $10 million, or 2%, compared to the prior year, primarily due to the $20 million impact from the acquisition of Australian News Channel Pty Ltd (“ANC”), operator of Australia’s SKY NEWS network, and favorable foreign currency fluctuations, partially offset by lower affiliate revenues at FOX SPORTS Australia and the absence of $10 million from the additional week in the prior year. Segment EBITDA was relatively flat compared to the prior year, primarily due to lower programming rights costs from the absence of Rugby World Cup and English Premier League rights, offset by lower affiliate revenues as noted above. Adjusted Revenues and Adjusted Segment EBITDA, which exclude the impact from favorable foreign currency fluctuations and the ANC acquisition as described in Note 1, decreased 5% and increased 2%, respectively.

Fourth Quarter Segment Results

Revenues in the quarter decreased $7 million, or 5%, compared to the prior year, primarily due to the absence of $10 million from the additional week in the prior year and lower affiliate revenues at FOX SPORTS Australia, partially offset by the $11 million impact from the acquisition of ANC and favorable foreign currency fluctuations. Segment EBITDA increased $1 million, or 4%, from the prior year, primarily due to lower programming rights costs, partially offset by lower revenues as noted above. Adjusted Revenues and Adjusted Segment EBITDA, which exclude the impact from favorable foreign currency fluctuations and the ANC acquisition as described in Note 1, decreased 13% and increased 4%, respectively.

News Corp earnings

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