News Corporation — Form 10-Q Summary
Period: Fiscal third quarter and nine months ended March 31, 2023; comparisons are with the corresponding fiscal 2022 periods. The filing’s reporting dates refer to fiscal periods ending April 2, 2023 and March 27, 2022, respectively. (The request metadata labels the period “2022 Q3,” but the filing covers fiscal 2023 Q3.) Amounts are in U.S. dollars unless noted.
Business context and financial performance
News Corp operates digital real estate, Australian subscription video, Dow Jones, book publishing and news media businesses.
| Metric | Three months | Nine months |
|---|---|---|
| Revenue | $2.447 billion, down 2% | $7.446 billion, down 3% |
| Net income | $59 million, down 43% | $219 million, down 65% |
| Net income attributable to News Corp stockholders | $50 million; diluted EPS $0.09 | $157 million; diluted EPS $0.27 |
| Total Segment EBITDA (non-GAAP) | $320 million, versus $358 million | $1.079 billion, versus $1.354 billion |
| Segment EBITDA margin | 13.1%, versus 14.4% | 14.5%, versus 17.6% |
| Operating cash flow | Not provided as a quarterly figure | $670 million, versus $1.030 billion |
| Free cash flow (non-GAAP) | Not provided as a quarterly figure | $320 million, versus $715 million |
| Free cash flow available to News Corp (non-GAAP) | Not provided as a quarterly figure | $258 million, versus $618 million |
Cash and cash equivalents were $1.659 billion at March 31, 2023, down from $1.822 billion at June 30, 2022. Total borrowings were $2.987 billion, compared with $3.069 billion; reported current borrowings were $27 million. Cash exceeded current liabilities of $3.204 billion by $828 million, though that comparison does not capture the timing or availability of all assets and liabilities. Management said liquidity, including cash, operating cash flow and borrowing access, was expected to cover needs for at least 12 months. $89 million of cash held by separately listed REA Group was not readily accessible to News Corp. Debt of Foxtel and REA is non-recourse to News Corp. The company reported compliance with debt covenants.
Material changes versus the prior period
- Revenue fell mainly due to weaker real estate, book publishing and news media results, and adverse foreign exchange. FX reduced revenue by $98 million in the quarter and $422 million year to date.
- Quarterly Segment EBITDA declined across Digital Real Estate Services, Subscription Video Services, Book Publishing and News Media; Dow Jones improved. Year-to-date EBITDA was also lower in those four segments, partly offset by Dow Jones growth.
- Digital Real Estate Services revenue declined 13% for the quarter; Move lead volumes fell 30%, with management citing higher interest rates and a weaker housing market. Dow Jones revenue rose 9%, supported by OPIS and Chemical Market Analytics acquisitions.
- Book Publishing year-to-date revenue declined 9% and EBITDA fell 42%, reflecting lower sales, difficult comparisons, Amazon inventory and warehouse changes, and higher manufacturing, freight and distribution costs. News Media year-to-date EBITDA declined 40%, including higher newsprint and digital investment costs.
- Year-to-date operating cash flow and free cash flow declined. Investing cash outflow was lower than the prior year, which included the OPIS acquisition. Financing used $382 million, including debt repayments, share repurchases and dividends.
- Prior-year nine-month results included a $107 million gain from REA Group’s Malaysia and Thailand business disposition and other gains; their absence contributed to the sharp year-over-year decline in “Other, net” and net income.
Outlook, commentary, risks and unusual items
- News Corp said it does not ordinarily provide projections of future operating results. It expects a 5% workforce reduction, approximately 1,250 positions, with $90–$100 million in cash restructuring charges expected in the second half of fiscal 2023. It estimated annualized gross savings of at least $160 million once completed, mostly reflected in fiscal 2024.
- Book Publishing supply-chain, inventory and inflation pressures were expected to continue in the near term. News Media expected fiscal 2023 newsprint, production and distribution costs to remain higher year over year. Management cited higher sports programming rights costs in Subscription Video Services.
- The potential FOX combination proposal was withdrawn in January 2023 and the special committee dissolved. Discussions about a potential sale of Move to CoStar ended in February 2023.
- Legal contingencies include HarperCollins-related antitrust litigation and U.K. Newspaper Matters. The company accrued approximately $123 million for U.K. claims and costs and recorded an approximately $122 million indemnification receivable from FOX; additional exposure could not be estimated. The Insignia and Valassis matters were settled and dismissed.
- Other risks include foreign exchange, economic and inflationary pressures, housing-market weakness, tax examinations and uncertainty in legal proceedings. The company said the Russia-Ukraine conflict had not materially affected results to date, but further escalation could affect employees, supply chains and costs. The filing reported no material change to the risk factors in the 2022 Form 10-K.
- Restructuring charges were $25 million for the quarter and $65 million year to date. Equity-method losses rose to $43 million year to date, primarily due to an Australian sports wagering investment. The company recorded higher effective tax rates partly due to foreign tax rates and valuation allowances.
- After quarter-end, the company renewed employment agreements for its CEO and CFO, effective July 1, 2023. The CEO’s agreement extends through June 2027; the CFO’s through June 2026. The filing details compensation and termination provisions.
Key facts for investors to verify
- Whether weaker housing activity, advertising demand, print sales and foreign-exchange effects persist, and how they affect segment revenue and profitability.
- Progress and realized savings from the announced workforce reductions, versus the expected restructuring charges and timing.
- Cash conversion and working-capital trends: year-to-date operating cash flow fell $360 million and free cash flow available to News Corp fell $360 million year over year.
- Debt maturities, borrowing costs and liquidity availability, including the distinction between parent-company resources and non-recourse subsidiary debt, and cash held at REA Group.
- Developments in the HarperCollins and U.K. legal matters, tax audits, and the CEO/CFO employment agreements and related potential obligations.