News Corporation — Form 10-Q Summary
Reporting period: Second quarter and first six months of fiscal 2022, ended December 31, 2021. The quarter compares with the three months ended December 27, 2020; the six-month comparison is to the six months ended December 27, 2020. Amounts are in U.S. dollars, millions except per-share data.
Business context
News Corp is a diversified media and information services company with six reportable segments: Digital Real Estate Services, Subscription Video Services, Dow Jones, Book Publishing, News Media and Other. Its businesses include REA Group and Move, Foxtel, Dow Jones, HarperCollins, and publications in Australia, the U.K. and the U.S.
Financial performance
| Metric | Three months ended Dec. 31, 2021 | Three months ended Dec. 31, 2020 | Six months ended Dec. 31, 2021 | Six months ended Dec. 31, 2020 |
|---|---|---|---|---|
| Revenue | $2,717 | $2,414 | $5,219 | $4,531 |
| Operating expenses | $1,279 | $1,198 | $2,523 | $2,362 |
| Selling, general and administrative | $852 | $719 | $1,700 | $1,404 |
| Income before tax | $361 | $346 | $699 | $418 |
| Net income | $262 | $261 | $529 | $308 |
| Net income attributable to News Corp stockholders | $235 | $231 | $431 | $265 |
| Diluted earnings per share | $0.40 | $0.39 | $0.72 | $0.45 |
| Segment EBITDA (non-GAAP) | $586 | $497 | $996 | $765 |
Quarterly revenue rose 13%; six-month revenue rose 15%. Six-month stockholder net income increased 63%, helped by higher segment EBITDA and a $107 million gain related to REA Group’s exchange of its Malaysia and Thailand businesses for an 18% interest in PropertyGuru. Six-month “Other, net” was income of $130 million, versus $71 million; it included a $98 million net gain on sale of businesses. Quarterly “Other, net” was an expense of $7 million, compared with income of $54 million in the prior-year quarter. Quarterly stockholder net income was nearly flat despite revenue growth, reflecting higher expenses, interest and tax, and lower “Other, net.”
Six-month income tax expense was $170 million on $699 million of pretax income; management said the effective rate exceeded the U.S. statutory rate, mainly due to foreign operations and changes in valuation allowances, partly offset by the PropertyGuru transaction’s lower tax impact. The filing does not provide a clear numerical effective tax rate in the text.
Segment trends and material changes
- Digital Real Estate Services: Quarterly revenue increased 35% to $456 million and EBITDA rose 25% to $178 million. Six-month revenue increased 40% to $882 million. Growth reflected stronger real estate revenue and acquisitions, including Mortgage Choice; Move lead volumes declined 9% for the quarter and 14% for the six months.
- Subscription Video Services: Quarterly revenue declined 3% to $498 million and EBITDA declined 31% to $86 million. Streaming revenue growth from Kayo and BINGE was offset by fewer residential broadcast subscribers and lower commercial revenue. Six-month revenue was essentially flat at $1,008 million and EBITDA fell 1% to $200 million. Streaming subscribers grew, while broadcast residential subscribers fell to 1.564 million from 1.783 million.
- Dow Jones: Quarterly revenue rose 14% to $508 million and EBITDA rose 32% to $144 million; six-month revenue rose 14% to $952 million. Growth reflected subscriptions, advertising and the acquisition of Investor’s Business Daily (IBD). Digital revenue was 72% of quarterly segment revenue.
- Book Publishing: Quarterly revenue increased 13% to $617 million, while EBITDA rose 3% to $107 million. Six-month revenue rose 16% to $1,163 million. Results included HMH Books & Media; higher manufacturing and freight costs and title mix partly offset growth.
- News Media: Quarterly revenue rose 11% to $638 million and EBITDA increased to $111 million from $66 million. Six-month revenue rose 15% to $1,214 million and EBITDA to $145 million from $44 million, supported by advertising recovery, digital subscriptions and content licensing.
Cash flow, debt and liquidity
- Six-month operating cash flow was $430 million, down from $483 million. Capital expenditures were $208 million, up from $173 million. Investing cash outflow was $249 million; financing cash outflow was $198 million.
- Management’s non-GAAP “free cash flow available to News Corporation” was $144 million, down from $277 million, reflecting lower operating cash flow and higher capital expenditures, partly offset by higher REA Group dividends.
- Cash and cash equivalents were $2.184 billion at December 31, 2021, compared with $2.236 billion at June 30, 2021. Total borrowings were $2.270 billion, including $302 million classified as current; long-term borrowings were $1.968 billion. Some subsidiary debt is non-recourse to News Corp.
- The company had an undrawn $750 million unsecured revolving credit facility, maturing in December 2024. Foxtel and REA Group also reported undrawn facility commitments. News Corp said it expected available liquidity to meet needs, including debt repayment, for at least the next 12 months; access to future financing remains subject to market and company conditions.
- Of cash held by foreign subsidiaries, $141 million was held by separately listed REA Group and not readily accessible without a REA Group dividend. Six-month dividends paid totaled $86 million; share repurchases used $43 million. The company authorized a $1 billion repurchase program, with approximately $954 million remaining at period-end.
Outlook, risks and unusual items
- The company said it does not ordinarily provide projections of future operating results. Management noted that supply-chain pressures on book manufacturing and freight costs, and a competitive labor market raising compensation and hiring costs, were expected to affect costs in the near term.
- News Corp agreed to acquire OPIS for $1.15 billion and Base Chemicals for $295 million, both subject to customary conditions and regulatory approvals; closings were expected in the second half of fiscal 2022. The company had also completed acquisitions of IBD, HMH Books & Media and Mortgage Choice during 2021.
- In January 2022, the company discovered persistent cyberattack activity at a third-party system. Its preliminary analysis indicated possible foreign government involvement and that data was taken; the company said customer and financial data systems were not affected to its knowledge, the activity appeared contained, and no operational interruptions had occurred. Investigation and remediation costs could not yet be estimated.
- Legal matters include antitrust claims involving HarperCollins and a pending Insignia case. The Valassis matter was settled and dismissed with prejudice in 2021. For U.K. Newspaper Matters, the company accrued approximately $46 million and recorded a $59 million receivable for expected indemnification by FOX; additional claims and ultimate costs remain uncertain.
- Restructuring charges were $45 million for the six months, primarily employee termination benefits. The company was in compliance with its debt covenants at December 31, 2021. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- How much of earnings growth is repeatable operating improvement versus acquisitions and the PropertyGuru-related gain; review segment EBITDA alongside GAAP net income and cash flow.
- Whether streaming growth can offset broadcast subscriber declines and the associated marketing, technology and programming costs.
- Whether cost inflation, supply-chain constraints and declining Move lead volumes persist, and how they affect margins.
- The final terms, financing and expected contribution of the OPIS and Base Chemicals acquisitions, and the effect on leverage and liquidity.
- The scope and financial, legal and reputational consequences of the January 2022 cyber incident, as well as the outcome of disclosed litigation and tax examinations.
- Cash availability across subsidiaries, including REA Group’s separately controlled cash, and the pace of buybacks and dividends relative to investment and debt needs.