News Corporation — Form 10-Q Summary
Business context and period. News Corp is a diversified media and information services company spanning digital real estate, Australian subscription video, Dow Jones, book publishing and news media. This report covers fiscal 2023’s second quarter and first six months, presented as ended December 31, 2022; the corresponding fiscal periods actually ended January 1, 2023. Comparatives are the prior-year periods.
Financial performance
Amounts are in millions of U.S. dollars except per-share data. The quarter and six-month results both show weaker revenue and earnings year over year.
| Metric | Three months | Six months |
|---|---|---|
| Revenue | $2,521, down 7% | $4,999, down 4% |
| Operating income | $174 | $366 |
| Net income | $94, versus $262 | $160, versus $529 |
| Net income attributable to News Corp shareholders | $67, versus $235; diluted EPS $0.12 versus $0.40 | $107, versus $431; diluted EPS $0.18 versus $0.72 |
| Total Segment EBITDA (non-GAAP) | $409, versus $586 | $759, versus $996 |
| Segment EBITDA margin | 16.2%, versus 21.6% | 15.2%, versus 19.1% |
| Operating cash flow | Not presented for the quarter | $161, versus $430 |
| Capital expenditures | Not presented for the quarter | $217 |
| Free cash flow (non-GAAP) | Not presented for the quarter | $(56), versus $222 |
| Free cash flow available to News Corp (non-GAAP) | Not presented for the quarter | $(102), versus $144 |
At December 31, cash and cash equivalents were $1,328, down from $1,822 at June 30. Total borrowings were $3,025, compared with $3,069; reported net debt was therefore approximately $1,697. Debt at Foxtel and REA is non-recourse to News Corp. Current assets were $3,763 and current liabilities $2,939. The company reported $750 of undrawn commitments under its revolving facility, plus subsidiary facility availability.
Material changes and drivers
- Revenue declines were led by Book Publishing, Digital Real Estate Services and News Media. Foreign-exchange movements reduced revenue by $171 in the quarter and $324 in the six-month period.
- Book Publishing revenue fell 14% in the quarter and 12% for six months; segment EBITDA fell 52% and 53%, respectively, amid softer consumer demand, difficult comparisons, Amazon inventory and warehouse changes, and higher production and distribution costs.
- Digital Real Estate Services revenue fell 15% in the quarter and 9% for six months. Move’s housing-market downturn and higher interest rates reduced lead volumes by 37% for the quarter and 34% for six months. Segment EBITDA declined 28% and 22%.
- News Media revenue declined 9% in the quarter and 7% for six months; segment EBITDA fell 47% in both periods, reflecting lower revenue, currency effects, higher newsprint costs and investment spending.
- Dow Jones revenue grew 11% in the quarter and 13% for six months, mainly from the OPIS and Chemical Market Analytics acquisitions. Segment EBITDA was down 3% for the quarter but up 5% for six months.
- Subscription Video Services revenue fell 7% in the quarter and 4% for six months, while segment EBITDA was broadly steady. Streaming growth at Kayo and BINGE partly offset subscriber declines and foreign-exchange effects.
Liquidity, capital allocation and outlook
Operating cash flow fell by $269 for the six months, primarily from lower Segment EBITDA and higher working capital, partly offset by lower restructuring and tax payments. Cash declined by $488 over the period. Investing cash outflow was $337; financing cash outflow was $312, including $178 of share repurchases and $89 of dividends. The company says cash, expected operating cash flow and access to borrowing are expected to meet liquidity needs, including debt repayment, for at least the next 12 months, while noting financing access depends on market and company conditions.
- Management expects to reduce headcount by about 5%, or 1,250 positions, during calendar 2023, targeting annualized savings of at least $130 and a one-year payback. The savings opportunity and related charges were still being evaluated.
- Management said softer book demand and publishing supply-chain, inventory and inflationary pressures were expected to persist in the near term. Newsprint, production and distribution costs were expected to be higher in fiscal 2023 than the prior year.
- News Corp generally does not issue projections of future operating results; the filing provides no consolidated earnings or revenue guidance.
- In January 2023, News Corp disclosed discussions with CoStar about a potential sale of Move; no transaction was assured. The proposal to explore a combination with FOX was withdrawn, and the special committee was dissolved.
- The filing cited potential risks from inflation, foreign exchange, housing-market weakness, litigation and tax examinations. It reported compliance with debt covenants and no material change to previously disclosed risk factors.
Contingencies and unusual items
Six-month earnings comparisons were affected by the absence of a prior-year $107 gain related to REA Group’s disposition of entities in Malaysia and Thailand; Other, net was $(24), versus income of $130. Equity affiliate losses rose to $33 for six months, primarily due to a newly launched Australian sports wagering venture. The company recorded $40 of restructuring charges for six months. U.K. Newspaper Matters liabilities were accrued at approximately $118, with an approximately $114 receivable for expected FOX indemnification; the company could not estimate exposure from potential additional claims. HarperCollins-related antitrust complaints were amended, and motions to dismiss were filed in January 2023. The company also disclosed $3,959 of sports programming commitments, including $499 due within one year, and an extended headquarters lease through fiscal 2042 averaging approximately $33 annual rent.
Important facts for investors to verify
- Whether the housing-market slowdown, foreign-exchange effects and weaker book demand persist, and how these trends affect segment earnings and cash generation.
- Progress and realized savings from the planned 1,250-position reduction, including implementation costs and timing.
- Any outcome of the CoStar discussions regarding Move and the resulting effect on strategy, liquidity and reported results.
- Cash-flow and working-capital trends, debt maturities and available borrowing capacity, distinguishing News Corp debt from non-recourse subsidiary debt.
- Developments in the HarperCollins and U.K. Newspaper Matters litigation, indemnification recoveries, and tax examinations.