Option Costs Rip Dow Jones

Profits drop on charges tied to News Corp.'s buyout bid.
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Updated from 10:42 a.m. EDT

Stock-option expenses tied to sale negotiations at

Dow Jones

(DJ)

caused a 27% decline in the publisher's second-quarter earnings, but after charges, the company logged an increase in profits for the period.

The publisher of the

Wall Street Journal

reported Thursday that its net income for the second quarter fell to $21 million, or 25 cents a share, from $28.8 million, or 34 cents a share, a year earlier.

The results included a one-time charge of 13 cents a share from stock-based compensation expense, reflecting a spike in Dow Jones' stock price after media mogul Rupert Murdoch's $5 billion offer to buy the company. The May offer from Murdoch's media empire,

News Corp.

(NWS) - Get Report

, took investors by surprise and sparked a 58% surge in Dow Jones' stock price.

The company's controlling shareholder, the Bancroft family, is currently mulling whether to accept Murdoch's $60-a-share bid despite misgivings about News Corp.'s editorial standards and independence. The offer was approved by a majority of the company's board of directors in a vote held earlier this week.

On a conference call with analysts following the release, Dow Jones CEO Richard Zannino, who reportedly voted in favor of accepting the deal, declined to comment on sentiments in the family, except to say, "They're carefully considering it -- that's as far as I'll go."

He also said the company's quarterly results show that it hasn't "been distracted by the News Corp. process."

Excluding the stock-option charge and 7 cents a share in restructuring costs, Dow Jones earned 45 cents a share, up from 39 cents a year earlier. That beat analysts' average estimate for the quarter of 44 cents a share, according to Thomson First Call.

Dow Jones reported a 16% increase in revenue for the quarter to $529.7 million. The top line fell short of expectations on Wall Street; analysts had an average forecast for revenue of $534 million.

The revenue gain was largely attributable to Dow Jones' recent purchase of the remaining stake in the database Factiva that it did not already own. Excluding the benefit of acquisitions, the company said its revenue rose 0.9%.

Zannino pointed to the results as evidence that the company's efforts to transform itself into a digital news publisher are gaining traction.

"We are overcoming industry-wide softness in print advertising with many initiatives," said Zannino in a press release, noting the acquisitions of Factiva and eFinancialNews, a recent redesign of the

Journal

, profitable growth at the company's indexes and its online media businesses, cost reductions and gains in both print and online circulation revenue. "We continue to work on these innovations as well as new ones to further reduce our reliance on print advertising and fuel our short- and long-term growth."

The company's newspaper business continued to suffer from industry-wide weakness in advertising. Its online advertising slowed from last year's double-digit growth rate to the low single-digits due to a drop in tech advertising at the online

Journal

.

Executives said on the conference call that the slowdown was a "hiccup," and double-digit online ad growth will resume later in the year.

Meanwhile, Dow Jones bucked industry trends by reporting gains in paid subscribers due to a recent promotional offering that bundles its print and online subscriptions for the

Journal

together at a lower price.

Overall, the company's consumer media unit, which includes the

Journal

, posted revenue of $290.8 million for the quarter, down slightly from last year.

Advertising revenue at the

Journal

's U.S. print edition declined 6.8% on an 11.4% decline in volume as weak technology, financial, general and classified advertising more than offset an increase in most consumer categories. The decline was partially offset by a 40.9% jump in ad revenue at its international media business, a 26.3% increase at

Barron's

and a 2.7% increase at The Wall Street Journal Digital Network.

Dow Jones local media business posted a revenue decline of 6.2% to $62.5 million, and its enterprise media revenue rose 81.4% to $178.2 million. Dow Jones Indexes logged a revenue gain of 41.7% as its

Dow Jones Industrial Average

hit new all-time record highs in the quarter, and Dow Jones Financial Information Services posted a 10.2% revenue increase.

Shares of Dow Jones recently were down 24 cents, or 0.4%, to $55.41.