NWSA Summary: Good News

To read Steve Birenberg's preview of the News Corp. conference call, click here.

News Corp. continued this week's parade of better-than-expected earnings reports from media companies. EPS of 22 cents exceed the consensus of 18 cents and grew 10% year over year. Revenue of $7.2 billion was down 4% but beat estimates. Margins drove the largest portion of the beat, as operating income grew 9% against Street estimates for a 4% decline. I think the Street will like the fact that the company had revenue upside even if it was modest.

With the quarter ahead of expectations and advertising assumptions higher than they were three months ago, the company is raising guidance for FY10, ending June, to "high single to low double digit" operating income growth. Prior guidance was for "high single digit growth."

NWSA follows Time Warner (TWX - commentary - Trade Now) with a "beat and raise" quarter. TWX shares could not hold gains as some concerns popped up about December-quarter TV ratings and advertising growth. I believe NWSA will rise in Thursday's trading and hold its gains.

Besides the good numbers, the management team, led by Rupert Murdoch, seems very confident in the company's positioning, even as they call the economic environment "challenging" But they also note that the macro environment is "clearly in better shape" and that they are "seeing improvements globally." But it is the confident tone struck by management that I think will carry the day.

The upside in the quarter came from the always volatile and difficult-to-model film business and the still-booming cable network business. The upside at film was real, as the company is benefiting from revenue recognition of Ice Age 3, the highest-grossing animated film of all time on a worldwide basis.

Cable nets continue to be driven by Fox News, but smaller nets like Big Ten and FX are also contributing. Upside later this year could come from the Fox TV Network, which is leading ratings so far. Usually, Fox starts slowly and then takes the lead when American Idol appears in January. With more scatter or spot inventory than usual and ads selling and pricing very close to airing, ratings leadership will be easier to monetize this TV season.

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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.