News Corporation — Form 10-Q Summary
Reporting period: Third quarter and first nine months of fiscal 2024, ended March 31, 2024. The filing is a fiscal 2024 Q3 report, notwithstanding the request metadata’s “2023 Q3” label. Comparisons are with the corresponding prior-year periods; the prior-year nine-month period ended April 2, 2023. Figures are in U.S. dollars unless noted.
Business context
News Corp is a diversified media and information services company operating in digital real estate, subscription video, Dow Jones, book publishing and news media. Its reported segments also include Other, primarily corporate costs. The interim financial statements are unaudited.
Financial performance and liquidity
| Metric | Three months ended March 31 | Nine months ended March 31 |
|---|---|---|
| Revenue | $2.423 billion, down 1% from $2.447 billion | $7.508 billion, up 1% from $7.446 billion |
| Net income | $42 million, down 29% from $59 million | $283 million, up 29% from $219 million |
| Net income attributable to News Corp stockholders | $30 million; diluted EPS $0.05, versus $50 million and $0.09 | $216 million; diluted EPS $0.38, versus $157 million and $0.27 |
| Total Segment EBITDA | $322 million, versus $320 million | $1.159 billion, versus $1.079 billion |
| Operating cash flow | Not presented separately for the quarter | $844 million, versus $670 million |
| Free cash flow | Not presented separately for the quarter | $491 million, versus $320 million |
| Free cash flow available to News Corp | Not presented separately for the quarter | $378 million, versus $258 million |
Segment EBITDA is a non-GAAP measure. As a share of revenue, it was approximately 13.3% for the quarter versus 13.1%, and 15.4% for the nine months versus 14.5%. The company reported comprehensive loss attributable to News Corp stockholders of $62 million for the quarter, compared with comprehensive income of $26 million, primarily reflecting greater foreign-currency translation losses.
At March 31, cash and cash equivalents were $1.943 billion, up from $1.833 billion at June 30, 2023. Total borrowings were $2.9 billion, including $56 million classified as current; long-term borrowings were $2.844 billion. Current assets were $4.128 billion and current liabilities $3.042 billion. Nine-month capital expenditures were $353 million. Cash used in financing was $317 million, including $1.235 billion of debt repayments, $115 million of dividends and $83 million of share repurchases, partly offset by $1.140 billion of new borrowings.
Management said cash on hand, expected operating cash flows and access to credit and capital markets should fund liquidity needs, including debt repayment, for at least the next 12 months. Of consolidated cash, $830 million was held by foreign subsidiaries, including $123 million at separately listed REA Group that is not readily accessible without a dividend declaration.
Material changes and segment trends
- Dow Jones: Nine-month revenue rose 4% to $1.665 billion and Segment EBITDA rose 12% to $405 million, supported by professional information products, including Risk & Compliance and Dow Jones Energy. Digital revenue reached 80% of segment revenue for the nine months.
- Book Publishing: Nine-month revenue grew 3% to $1.581 billion and Segment EBITDA increased 40% to $212 million, helped by higher digital sales, improved U.S. returns and lower manufacturing and distribution costs. Quarterly revenue declined 2% amid softer physical frontlist sales.
- Digital Real Estate Services: Nine-month revenue increased 3% to $1.210 billion and Segment EBITDA increased 7% to $373 million. REA Group growth outweighed weakness at Move, where U.S. housing-market conditions and higher interest rates weighed on revenue and lead volumes.
- Subscription Video Services: Nine-month revenue fell 2% to $1.411 billion and Segment EBITDA fell 12% to $236 million. Streaming growth was offset by foreign exchange, fewer residential broadcast subscribers, higher sports-rights costs and $23 million of Hubbl launch costs.
- News Media: Nine-month revenue declined 3% to $1.641 billion and Segment EBITDA declined 17% to $92 million, chiefly due to weaker advertising. Lower print volumes, newsprint prices and headcount savings partly offset the pressure.
Consolidated quarterly advertising revenue declined 9% to $358 million; nine-month advertising revenue declined 6% to $1.187 billion. Nine-month circulation and subscription revenue increased 2%, consumer revenue increased 3%, and real estate revenue increased 5%.
Outlook, management commentary, risks and unusual items
- The company says it does not ordinarily provide projections of future operating results. It expects annualized gross savings of at least $160 million from its announced 5% headcount reduction; the program was substantially complete by December 31, 2023, with approximately $106 million of associated cash restructuring charges recognized.
- A proposed joint venture combining certain U.K. newspaper printing operations received regulatory approval in March 2024 and was expected to take effect in the fourth quarter of fiscal 2024. The company recorded a $22 million non-cash fixed-asset impairment related to the arrangement and reported $5 million of one-time News UK costs in the nine-month period.
- Quarterly impairment and restructuring charges were $35 million, versus $25 million; nine-month charges were $86 million, including the impairment and employee termination benefits. Other, net was a $10 million expense for the quarter versus $14 million of income in the prior-year quarter.
- Foxtel and REA Group refinanced debt during the period. The company reported covenant compliance at March 31. Foxtel’s facilities include maximum net debt-to-adjusted EBITDA of 3.25x and minimum net interest coverage of 3.5x; REA’s include maximum net leverage of 3.5x and minimum interest coverage of 3.0x. Subsidiary debt is non-recourse to News Corp.
- Management cited continued U.S. housing-market weakness, advertising softness, foreign-exchange movements, subscriber declines and programming-rights cost increases as operating pressures. The filing says there were no material changes to the risk factors in the 2023 Form 10-K.
- Legal matters remain uncertain. U.K. Newspaper Matters had an accrued liability of approximately $70 million and a related FOX indemnification receivable of approximately $71 million at March 31, 2024; the company cannot estimate exposure from possible additional claims. HarperCollins-related publisher antitrust complaints were dismissed, though an appeal period remained for one case.
- The company recorded income tax expense of $153 million on nine-month pretax income of $436 million; management attributed the higher-than-U.S.-statutory tax rate to foreign operations and valuation allowances. Tax audits are ongoing, and the company is evaluating potential Pillar Two tax effects.
Important facts for investors to verify
- Whether advertising weakness, especially in News Media, persists and whether digital growth offsets print declines.
- Move’s performance as U.S. housing-market conditions evolve, and the pace of REA Group growth.
- Foxtel streaming subscriber, churn and profitability trends, including Hubbl costs and sports-rights expenses.
- Delivery and timing of the stated cost savings, and the costs and execution of the U.K. printing joint venture.
- Debt maturities, refinancing terms, subsidiary covenant headroom and the availability of cash held at subsidiaries.
- Developments in U.K. Newspaper Matters, tax audits and other legal or regulatory contingencies.
- Non-GAAP Segment EBITDA and free cash flow reconciliations; these measures do not replace GAAP earnings or cash-flow measures.