21st Century Fox (FOXA) Q4 Earnings Preview 2013: Profits Up For News Corp.’s Final Combined Report

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Fox News Chairman and CEO Roger Ailes Reuters

FOXA 21st Century Fox, which recently spun off its newspaper and book publishing business, on Tuesday will release its first financial report since the split. A sign is seen outside News Corporation building in New York, June 27, 2012.  Reuters/Brendan McDermid

Rupert Murdoch’s newly minted 21st Century Fox Inc. (Nasdaq:FOXA) is expected on Tuesday to report higher profits on lower fourth-quarter revenue, double-digit gains in domestic advertising and affiliate fees for its pay-TV networks offsetting ratings struggles at Fox broadcasting.  

The multinational media conglomerate, formerly known as News Corp. (Nasdaq:NWSA), is expected to report net income of $788.7 million, or 35 cents per share, for the period ended June 30, up 7.7 percent from $783 million, or 32 cents per share, a year earlier. Analysts polled by Thomson Reuters expect revenue to fall 14.9 percent to $7.12 billion from $8.37 billion last year.

21st Century Fox will report results after U.S. markets close. It’s the final earnings report for the combined company, which spun off its publishing segment into a separate publicly traded company on July 1. The publishing company has retained the name News Corp. Murdoch serves as chairman of both companies and CEO of 21st Century Fox. Analysts overwhelmingly believe the separation will leave 21st Century Fox nimbler and more appealing to investors in the long term.

“After the spinoff, 21st Century Fox owns a vast collection of media enterprises,” Morningstar analyst Michael Corty said in a July research note. “We believe the company has a strong competitive advantage based on its global cable network business as well as a film studio that generates TV and movie content and owns a vast library of programming.”

Free from the dwindling profits of its legacy print businesses -- which include the Wall Street Journal, the New York Post and HarperCollins Publishers -- 21st Century Fox’s lucrative entertainment and media properties are expected to gain a more secure competitive advantage against rival media companies such as Viacom Inc. (Nasdaq:VIAB) and Discovery Communications Inc. (Nasdaq:DISCA). Time Warner Inc. (NYSE:TWX) is also in the process of spinning off its publishing unit, Time Inc.

Wells Fargo analysts Marci Ryvicker, Eric Katz and Stephan Bisson expect gains in the double digits for Fox’s portfolio of cable networks, which includes Fox News, FX and National Geographic, along with more than 12 regional sports networks. The analysts expect cable revenue to rise 13.6 percent to $2.81 billion, and operating income to rise 21.3 percent to $961 million. Sports programming, TV’s most-profitable genre, continues to be a boon for Fox.

“Roughly 17 percent of net advertising revenues come from regional sports networks,” the Wells Fargo analysts wrote. “Fox owns 15 regional sports networks and is affiliated with another nine.”

With a 22 percent decline in ratings for the Fox network, driven in part by the floundering former powerhouse “American Idol,” broadcast TV has been a challenge. Analysts expect revenue to remain flat for the segment at $1.08 billion. Operating income is expected to rise 14.3 percent to $243 million, thanks in part to higher retransmission fees negotiated with Comcast Corp. (Nasdaq:CMCSA) and the privately held Suddenlink Communications.

It was a mixed bag for Fox’s studio entertainment segment, which includes the 20th Century Fox film studio. The animated film “Epic,” was the studio’s biggest hit in the quarter, but the Vince Vaughn/Owen Wilson comedy “The Internship” struggled to make back its reported $58 million production budget. As of August, the movie has grossed $44 million domestically and an additional $30 million internationally.

Still, operating income for filmed entertainment is expected to rise 52 percent to $183 million, despite only a 2 percent increase in revenue to $1.77 billion. This is partially the result of flow-through revenue from the hit film “The Croods,” which was released in the third quarter, Wells Fargo analysts said.

The analysts said they anticipate announcements on Fox’s future movie slate during the company’s earnings call, during which management is also expected to provide guidance for FY2014 operating income growth.   

Shares of 21st Century Fox closed Friday at $31.53, up 2.97 percent.

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