News Corporation — Form 10-Q Summary
Reporting period: First quarter of fiscal 2023, the three months ended September 30, 2022 (the company’s stated reporting date; underlying quarter ended October 2, 2022). Comparatives are for the prior-year quarter. News Corp is a diversified media and information services company spanning digital real estate, subscription video, business information, book publishing and news media.
Financial performance
| Metric | Q1 FY2023 | Q1 FY2022 |
|---|---|---|
| Revenue | $2.478 billion | $2.502 billion |
| Segment EBITDA | $350 million | $410 million |
| Operating income | $146 million | $208 million |
| Income before tax | $101 million | $338 million |
| Net income | $66 million | $267 million |
| Net income attributable to News Corp stockholders | $40 million | $196 million |
| Diluted EPS | $0.07 | $0.33 |
| Net cash from operating activities | $(31) million | $68 million |
| Capital expenditures | $104 million | $101 million |
| Cash and cash equivalents at period end | $1.458 billion | $2.100 billion |
| Total borrowings at period end | $3.000 billion | Not stated here for the prior comparable date |
Revenue declined 1%, while Segment EBITDA fell 15%. Net income attributable to News Corp stockholders declined 80%. The company does not report a consolidated gross margin in the filing; Segment EBITDA was approximately 14.1% of revenue versus 16.4% in the prior-year quarter, calculated from reported figures. Operating cash flow less capital expenditures was negative $135 million versus negative $33 million; the company’s non-GAAP free cash flow available to News Corp was negative $122 million versus negative $25 million.
At September 30, current assets were $3.754 billion and current liabilities were $3.013 billion. Cash was down $364 million from June 30. Borrowings included $1.980 billion at News Corp, approximately $701 million at Foxtel and approximately $264 million at REA Group; Foxtel and REA debt is non-recourse to News Corp. The company reported $750 million of undrawn commitments under its revolving facility, plus available facilities at Foxtel and REA. Management said liquidity should meet needs for at least 12 months, including debt repayment, while noting future financing access depends on market and company conditions.
Material changes and segment results
- Dow Jones: Revenue rose 16% to $515 million and Segment EBITDA rose 19% to $113 million, including contributions from OPIS and Chemical Market Analytics (CMA), acquired in fiscal 2022. Consumer subscriptions and digital revenue also grew.
- Book Publishing: Revenue fell 11% to $487 million and Segment EBITDA fell 54% to $39 million. Management cited lower physical-book orders and higher returns following Amazon’s inventory reset, foreign exchange effects, and elevated manufacturing and freight costs.
- News Media: Revenue fell 4% to $553 million and Segment EBITDA fell 47% to $18 million. Foreign exchange, print declines and higher costs—including TalkTV and digital investment, newsprint, production and distribution—were factors.
- Digital Real Estate Services: Revenue fell 1% to $421 million and Segment EBITDA fell 14% to $119 million. Move revenue declined 6%; management attributed lower leads and transactions to housing-market weakness and higher interest rates. REA Group revenue increased 2% in U.S. dollar terms, partly offset by currency effects.
- Subscription Video Services: Revenue fell 2% to $502 million and Segment EBITDA fell 3% to $111 million. Streaming growth at Kayo and BINGE was offset by currency effects and fewer residential broadcast subscribers. Total Foxtel streaming subscribers increased; broadcast residential subscribers declined to 1.439 million from 1.605 million.
Foreign exchange reduced consolidated revenue by $153 million (6%) year over year, while also lowering operating expenses and SG&A. The prior-year quarter included a $107 million gain from REA Group’s disposition of entities in Malaysia and Thailand; its absence was a major reason for the year-over-year decline in “Other, net” and earnings. Interest expense increased to $27 million from $22 million, primarily following new debt issued in fiscal 2022. The effective tax rate in the current quarter was higher than the U.S. statutory rate, reflecting foreign tax rates and valuation allowances.
Cash, capital allocation and other items
- Operating cash flow decreased by $99 million year over year, which management attributed primarily to lower Segment EBITDA, higher working capital and higher interest payments.
- Investing cash outflow was $130 million, including $104 million of capital expenditures. Financing cash outflow was $149 million.
- The company repurchased 5.0 million Class A shares and 2.5 million Class B shares for approximately $127 million in total. About $690 million remained under the $1 billion authorization at quarter end.
- A semi-annual dividend of $0.10 per share was declared and paid on October 12, 2022. Future dividends remain at the Board’s discretion.
- Sports programming commitments totaled $3.246 billion, including $453 million due within one year.
- Restructuring charges were $21 million; the related liability was $62 million at quarter end.
Outlook, risks and contingencies
The company does not ordinarily provide projections of future operating results; the filing gives no numerical earnings or revenue guidance. Management expects book-publishing supply-chain and inflationary pressures to continue in the near term, though at a more moderate rate, and expects News Media newsprint, production and distribution costs to be higher in fiscal 2023 than in the prior year. The filing identifies housing-market weakness and higher interest rates, foreign-exchange movements, inflation, supply-chain costs, subscriber trends and advertising conditions as relevant operating pressures. Management said the Russia-Ukraine conflict had not materially affected results to date, but further escalation or economic disruption could worsen inflation and supply-chain risks.
In October 2022, after the reporting period, News Corp announced that a Board special committee would explore a potential combination with FOX Corporation. The committee had made no determination, and there was no certainty a transaction would occur. The company was in compliance with debt covenants at September 30. Legal matters remain uncertain: the HarperCollins-related antitrust complaints were dismissed in September with leave to amend; the company accrued approximately $116 million for U.K. Newspaper Matters and recorded an approximately $113 million indemnification receivable from FOX. The filing says potential losses on other disclosed contingencies generally could not be estimated. The company was also evaluating the expected impact of the Inflation Reduction Act.
Investor verification points
- Check whether subscription growth and Dow Jones expansion can offset weakness in book publishing, news media and real estate as macroeconomic conditions evolve.
- Assess the durability of negative free cash flow and the drivers of working-capital use; distinguish News Corp’s own debt from non-recourse Foxtel and REA debt.
- Monitor currency impacts, book returns and Amazon ordering patterns, housing-market lead volumes, and inflation-related programming, production and freight costs.
- Track the FOX combination exploration for any formal proposal, committee recommendation, shareholder vote requirements or material update.
- Review potential changes to legal and tax exposures, including U.K. Newspaper Matters, HarperCollins litigation, tax examinations and the associated indemnification receivable.
- Consider the scale and timing of sports-rights commitments, ongoing share repurchases, dividends and remaining borrowing capacity alongside liquidity needs.