News Corp reports 16pc earnings bump, 2pc revenue slide
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News Corp's earnings increased in the second quarter to 30 December 2016, relative to the same period a year earlier, even as revenues saw a modest fall.
News Corporation's (ASX: NWS) earnings before interest, tax, depreciation and amortisation (EBITDA) increased 16 per cent in the three months to December 2016 to $325 million, up from $280 million in the prior corresponding period.
Revenue was down $45 million, or 2 per cent, over the same period, to $2.12 billion from $2.16 billion in the second quarter of fiscal 2016.
Every division recorded growth except News and Information Services, which includes its Australian newspaper business. This business, and 50 per cent-owned Foxtel, recorded write-downs of US$310 million and US$227 million, respectively.
The group also recorded a 40 per cent year-on-year increase in free cash flow, up US$157 million.
"These write-downs are disappointing, but they are non-cash. It's a recognition that the future earnings are not expected to be as high as management had previously thought," said Morningstar equity analyst Brian Han.
Han emphasised these forecasts are usually set many years out, so changes like this are not unusual, and also highlighted the company's strong position and "still solid free cash generation" relative to its struggling peers in newspaper publishing.
"The enviable financial health provides management with critical flexibility, as it attempts to navigate the treacherous structural landscape and transition the company into the brave new world of digital media," he said.
The group's digital real estate services division was a highlight, with revenues increasing $34 million over the quarter, or 16 per cent on a non-adjusted basis, largely attributed to continued growth at REA Group.
News Corporation chief executive Robert Thomson attributed the growth to its "strategic reinvestment and digital diversification, at the same time as "continued headwinds in print advertising" took their toll on other divisions.
Revenues in the News and Information division fell 7 per cent in the second quarter of fiscal 2017, down $97 million on the same period in 2016. Much of these declines are due to weakness in print advertising, with these revenues down 8 per cent, adjusted for a $12-million impact from negative foreign currency fluctuations.
Circulation and subscription revenues also declined 5 per cent over the quarter, relative to the second quarter in fiscal 2016.
The US$227-million write-down of Foxtel relates to a reduced carry value of News Corporation's investment in the pay-TV business.
Foxtel's performance in the first half of fiscal 2017 and competitive pressures in the Australian pay-television market led News Corporation management to reduce to $1.2 billion, from $1.4 billion, the carrying value of its investment.
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Glenn Freeman is Morningstar's senior editor.
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