News Corporation Form 10-Q Summary
Business context and period: News Corporation is a diversified media and information services company, with businesses in digital real estate, subscription video, news and information, and book publishing. This report covers the first quarter of fiscal 2024, the three months ended September 30, 2023; comparative figures are for the prior-year quarter. Amounts below are in U.S. dollars unless indicated otherwise.
Financial performance
| Metric | Q1 FY2024 | Q1 FY2023 |
|---|---|---|
| Revenue | $2.499 billion | $2.478 billion |
| Net income | $58 million | $66 million |
| Net income attributable to News Corp shareholders | $30 million | $40 million |
| Basic and diluted EPS | $0.05 | $0.07 |
| Total Segment EBITDA (non-GAAP) | $364 million | $350 million |
| Cash used in operating activities | $55 million | $31 million |
| Cash and cash equivalents at period end | $1.529 billion | $1.458 billion |
Revenue increased 1%. Total Segment EBITDA rose 4%; its margin was approximately 14.6% of revenue, versus 14.1% a year earlier. Net income attributable to shareholders fell 25%, and diluted EPS declined from $0.07 to $0.05. The reported effective tax rate was approximately 39% (tax expense of $37 million on $95 million pretax income); management cited higher-tax foreign operations and valuation allowances.
Revenue by segment: Digital Real Estate Services $403 million (down 4%); Subscription Video Services $486 million (down 3%); Dow Jones $537 million (up 4%); Book Publishing $525 million (up 8%); News Media $548 million (down 1%). Segment EBITDA was $122 million, $93 million, $124 million, $65 million and $14 million, respectively. Other corporate and strategy costs were $54 million.
Cash, debt and liquidity
- Cash decreased from $1.833 billion at June 30 to $1.529 billion at September 30. Cash used in investing was $159 million, including $124 million of capital expenditures; cash used in financing was $65 million.
- Free cash flow, a non-GAAP measure, was negative $179 million, compared with negative $135 million. Free cash flow available to News Corporation was negative $174 million, versus negative $122 million.
- Total borrowings were $2.970 billion, including $61 million current and $2.909 billion long-term. Cash and borrowings imply consolidated net debt of approximately $1.441 billion; this combines cash and debt across the consolidated group. Foxtel and REA debt is non-recourse to News Corp.
- News Corp had $1.979 billion of borrowings and $750 million of undrawn commitments under its revolving facility. Foxtel and REA reported additional undrawn commitments of A$304 million and A$282 million, respectively.
- Management said available cash, expected operating cash flows and financing access should meet liquidity needs for at least 12 months, including debt repayments. It noted that access to financing depends on business performance, credit ratings, debt terms and market conditions. Of consolidated cash, $674 million was held by foreign subsidiaries, including $118 million at separately listed REA Group and not readily accessible without a REA dividend.
Material changes and management commentary
- Growth and pressure points: Dow Jones revenue and EBITDA benefited from professional information products, including Risk & Compliance and Dow Jones Energy, while digital-only consumer subscriptions increased. Book Publishing improved on physical sales, U.S. returns and lower manufacturing, freight and distribution costs. Move revenue fell 16% amid a weak U.S. housing market, higher interest rates and lower lead and transaction volumes. Subscription Video EBITDA declined 16%, primarily due to higher sports rights costs.
- Costs and unusual items: The quarter included a $21 million non-cash News Media impairment tied to a proposed U.K. printing-operations combination and $17 million of restructuring charges. Other, net was a $35 million loss, including $23 million of equity-security remeasurement losses, compared with an $18 million loss in the prior-year quarter. Foreign currency movements reduced revenue by $14 million.
- Cost reductions: The company said it had recorded approximately $96 million of cash restructuring charges through September 30 under its 5% headcount-reduction initiative. It expects at least $160 million of annualized gross savings, with the majority reflected in fiscal 2024.
- Debt refinancing: Foxtel refinanced facilities with a new A$1.2 billion syndicated facility; REA entered new credit facilities. The company was in compliance with debt covenants at September 30. Foxtel facilities include maximum net-debt-to-EBITDA and minimum interest-coverage covenants.
- Outlook: News Corp said it does not ordinarily provide projections of future operating results. In October 2023, News UK and DMG Media announced a proposed joint venture to combine certain U.K. printing operations, subject to regulatory approval; operations remain separate pending approval.
Risks, contingencies and other disclosures
- The company described ongoing litigation and investigations as uncertain and said adverse outcomes could affect results, financial condition or reputation. It accrued approximately $101 million for U.K. Newspaper Matters and recorded a corresponding receivable from FOX under an indemnity; potential additional claims could not be estimated.
- In HarperCollins-related publisher antitrust litigation, one case was dismissed with prejudice in August 2023; another remained unresolved in the filing. The company said HarperCollins intends to defend itself.
- Tax returns remain subject to audits, including an IRS audit for fiscal 2018. The company said it believes its uncertain-tax accruals are appropriate but may need adjustment. It was evaluating the potential effect of OECD Pillar Two rules.
- The filing reported no material changes to the risk factors in the 2023 Form 10-K and no material change in market-risk sensitivity. Management concluded disclosure controls were effective; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether Move’s housing-market pressures and lower lead volumes persist, and how they affect segment results.
- Whether Foxtel streaming growth can offset broadcast subscriber declines and contractual sports-rights cost increases.
- Progress toward the stated $160 million or more annualized gross cost savings, and the remaining cash costs of restructuring.
- Cash conversion and working-capital trends, given operating cash outflow and deteriorating free cash flow measures.
- Debt maturities, interest costs, facility availability and covenant headroom, especially at Foxtel and REA.
- Regulatory approval and expected effects of the proposed U.K. printing joint venture, including any further impairment or transition costs.
- Developments in U.K. Newspaper Matters, the remaining HarperCollins litigation and tax audits, including whether recorded accruals or indemnity receivables change.