News Corporation — Form 10-Q Summary
Business context and reporting period
Global media and information-services company spanning news and information, book publishing, digital real estate, and Australian cable programming. This quarterly report covers the quarter and six months ended December 31, 2016 (fiscal 2017); the company notes its fiscal-quarter dates are used for convenience. Digital Education is reported as discontinued operations.
Financial performance
Amounts are in millions of U.S. dollars, except per-share data and percentages.
| Metric | Quarter ended Dec. 31, 2016 | Prior-year quarter | Six months ended Dec. 31, 2016 | Prior-year six months |
|---|---|---|---|---|
| Revenue | $2,116 | $2,161 | $4,081 | $4,175 |
| Segment EBITDA (non-GAAP) | $325 | $280 | $455 | $445 |
| Income (loss) from continuing operations | $(219) | $106 | $(219) | $249 |
| Net income (loss) attributable to News Corp stockholders | $(289) | $63 | $(304) | $238 |
| Basic and diluted earnings (loss) per share | $(0.50) | $0.11 | $(0.52) | $0.41 |
- Quarterly revenue fell 2%; advertising declined 8% and circulation/subscription declined 4%. Real estate revenue rose 16% and consumer revenue rose 5%. Six-month revenue also decreased 2%.
- Segment EBITDA increased 16% for the quarter and 2% for the six months. Approximate segment EBITDA margin was 15.4% for the quarter versus 13.0%; six-month margin was 11.2% versus 10.7%. These are non-GAAP measures and exclude, among other items, impairment and restructuring charges.
- Quarterly results included a $310 million non-cash impairment, primarily on Australian newspaper assets, and a $227 million non-cash write-down of the Foxtel investment. Other, net included a $120 million gain on the sale of REA Group’s European business and a $21 million write-down of marketable securities.
- Cash provided by continuing operating activities was $4 million for the six months, versus $346 million. Capital expenditures were $108 million. Company-defined free cash flow available to News Corporation was negative $160 million, versus positive $178 million.
- Cash and cash equivalents were $1.564 billion at December 31, 2016, down from $1.832 billion at June 30. Total debt was $355 million, including $87 million current and $268 million long-term. Current assets were $3.591 billion and current liabilities $2.325 billion. The company had not drawn on its $650 million revolving credit facility and reported compliance with debt covenants.
Material changes and segment trends
- News and Information Services revenue decreased 7% for the quarter and 6% for the six months; segment EBITDA fell 10% and 22%, respectively. Management cited print-advertising weakness and currency impacts, partly offset by cost savings and lower production costs.
- Digital Real Estate Services revenue increased 16% for the quarter and 17% for the six months; segment EBITDA rose 30% and 25%, respectively, supported by REA Group and Move.
- Book Publishing quarterly revenue rose 4% and EBITDA rose 32%; six-month revenue was flat while EBITDA increased 24%. Cable Network Programming quarterly EBITDA rose 31%, but six-month EBITDA declined 3%.
- Six-month operating cash flow was reduced by the $250 million NAM Group settlement payment, lower affiliate distributions, and working-capital timing. The settlement was approved in October 2016.
Outlook, commentary, risks, and unusual items
- The company does not ordinarily provide projections of future operating results. Dow Jones reorganization charges of approximately $30–$40 million were expected during the remainder of fiscal 2017; management expected the reorganization to generate about $100 million in annualized cost savings by the end of fiscal 2018.
- Management cited accelerating declines in print advertising in Australia and globally. Approximately $2.4 billion of goodwill and indefinite-lived intangible assets in News and Information Services and Cable Network Programming reporting units was identified as at risk of future impairment. A News and Information Services reporting unit’s fair value exceeded carrying value by less than 5%.
- Foxtel’s outlook was revised downward amid Australian pay-TV competition and weaker expected cash flows; further non-cash investment write-downs may be required. Foxtel planned to cease Presto operations in January 2017.
- Other risks include foreign-currency translation exposure, changing media and advertising preferences, and legal and tax contingencies. The company accrued $97 million for U.K. Newspaper Matters, with approximately $53 million expected to be indemnified by 21st Century Fox; additional claims could not be estimated. Valassis antitrust proceedings remained unresolved; an expert panel recommended dismissal of the Valassis I notice, subject to court process.
- After quarter-end, REA Group acquired an approximately 15% interest in Elara Technologies for $50 million. The board declared a semi-annual dividend of $0.10 per share, payable in April 2017. No share repurchases occurred during the six-month period.
Important facts for investors to verify
- Whether print-advertising declines continue and whether digital and real-estate growth can offset them.
- The assumptions and sensitivity behind the Australian newspaper impairment and the $2.4 billion of assets identified as at risk of impairment.
- Foxtel’s operating outlook and the potential for additional investment write-downs following the Presto closure.
- The durability of operating cash generation after the NAM settlement and the timing of working-capital movements and affiliate distributions.
- Final purchase-accounting valuations for Wireless Group, and developments in Valassis litigation, U.K. Newspaper Matters, and related indemnification.