NWSA Preview: Looking for a Small Upside Surprise

News Corporation (NWSA - commentary - Trade Now) is expected to report first-quarter 2010 EPS of 18 cents on revenue of $7.16 billion. For the first quarter of 2009, the company reported revenue of $7.5 billion and EPS of 20 cents. As a result, the first-quarter 2010 result should show about a 5% decline in revenue and a 10% decline in EPS. First quarter 2010 represents much-improved performance, but, similar to many companies, year-over-year growth remains negative.

I think that there is a decent chance for a small upside surprise in the results, but investors will respond to management's comments on advertising trends thus far in the December quarter and looking ahead into 2010. On this front, I expect cautious optimism from Rupert Murdoch, driven by good ratings performance at his key TV assets and an improving, though still deeply negative, outlook at local media of newspapers and TV stations. Rupert has been sounding more optimistic lately after a very bearish period. His tone will be scrutinized.

Business trends at MySpace and SkyItalia, formerly key growth drivers and now major laggards, will also be a focus of investors. I do not expect good news from either segment.

The film segment seems set up well, with Ice Age 3: Dawn of the Dinosaurs box office driving the quarter. December-quarter profits on the DVD sales should be better, but a weak start for sales of DreamWorks Animation's (DWA - commentary - Trade Now) Monsters vs. Aliens makes me wonder if the DVD slowdown may not have finally reached the thus-far relatively healthy animated market.

News Corporation is rumored to be the leading bidder for Travel Channel. The company has also announced a reformatting of its Fox Reality network to National Geogrphic Wild. The focus on cable networks will be welcomed after a period of investment in assets that now face secular challenges, including newspapers and MySpace. Questions remain about the allocation of free cash flow and future assets that will remain or be brought into the company's realm.

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At time of publication, Birenberg was long CBS for his client and personal accounts, although holdings can change at any time.

Steven Birenberg is president and chief investment officer of Northlake Capital Management, LLC. Northlake specializes in managing equity portfolios using a combination of exchange-traded funds and special situation stocks. Birenberg appreciates your feedback; click here to send him an email.