News Management Discusses Q3 2012 Results - Earnings Call Transcript

News (NWSA)

Q3 2012 Earnings Call

May 09, 2012 4:30 pm ET

Executives

Reed Nolte - Senior Vice President of Investor Relations

David F. DeVoe - Chief Financial Officer, Principal Accounting Officer, Senior Executive Vice President and Executive Director

Chase Carey - Deputy Chairman, President and Chief Operating Officer

Analysts

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Jessica Reif Cohen - BofA Merrill Lynch, Research Division

Richard Greenfield - BTIG, LLC, Research Division

Benjamin Swinburne - Morgan Stanley, Research Division

Alan S. Gould - Evercore Partners Inc., Research Division

David Bank - RBC Capital Markets, LLC, Research Division

Adam Alexander - Goldman Sachs Group Inc., Research Division

Jason B. Bazinet - Citigroup Inc, Research Division

Barton E. Crockett - Lazard Capital Markets LLC, Research Division

Spencer Wang - Crédit Suisse AG, Research Division

Tuna N. Amobi - S&P Equity Research

Unknown Analyst

Presentation

Operator

Ladies and gentlemen, and thank you for standing by, and welcome to the News Corp. Third Quarter 2012 Earnings Release. [Operator Instructions] And as a reminder, today's call is being recorded.

With that being said, I'll turn the conference now to the Senior Vice President, Investor Relations, Mr. Reed Nolte. Please go ahead, sir.

Reed Nolte

Thank you very much, operator. Hello everyone, and welcome to our Third Quarter Fiscal 2012 Earnings Conference Call. Joining me on today's call are Chase Carey, President and Chief Operating Officer; and Dave DeVoe, our CFO. First, we will give some prepared remarks on the most recent quarter, then we'll be happy to take your questions, first from the financial community and then from the press.

This call may include certain forward-looking information with respect to News Corporation's business and strategy. Actual results could differ materially from what is said. News Corporation's Form 10-Q for the 3 months ended March 31, 2012, identifies risks and uncertainties that could cause actual results to differ. And these statements are qualified by the cautionary statements contained in such filings.

Additionally, this call will include certain non-GAAP financial measurements. The definition of and a reconciliation of such measures can be found on our earnings release and our 10-Q filing. Finally, please note that certain financial measures used in this call such as segment operating income, adjusted earnings per share and adjusted net income, are expressed on a non-GAAP basis. The GAAP to non-GAAP reconciliation of segment operating income, EPS and net income are included in our earnings release.

And with that, I'll turn it over to Dave.

David F. DeVoe

Thank you, Reed, and good afternoon, everybody. As you have seen in today's earnings release, we are pleased with our continued progress in fiscal 2012. We reported third quarter segment operating income of $1.31 billion, a 23% increase over a year ago level. This improvement was led by very solid results at our Cable Programming and Film segment. The current quarter's operating income results include a $63 million charge related to the ongoing investigations initiated upon the closure of the News of the World in the United Kingdom. Also note, the year ago quarter included a $125 million charge related to a litigation settlement involving the company's Integrated Marketing Services business. Excluding these charges from both years, third quarter adjusted total segment operating income of $1.38 billion increased 16% from $1.19 billion in the prior year. Our share reported results from our equity earnings of affiliates were up $93 million in the quarter and after adjusting for gains associated with BSkyB's share repurchase program and adjustments in the prior year primarily related to asset dispositions at NDS, associated results improved $67 million. The majority of this improvement reflects revenue-driven earnings growth at BSkyB.

Reported net income in the quarter was $937 million, with reported earnings per share of $0.38 as compared to reported earnings per share a year ago of $0.24. Excluding the net income effects in both years of onetime items, primarily consisting of the items I just highlighted, third quarter adjusted earnings per share this year are $0.37 compared with the year ago adjusted result of $0.26, a 42% earnings per share improvement. Our press release includes a reconciliation of our GAAP results to these amounts.

Now I'd like to provide some additional context on the performance at a few of our businesses. Now, let's start with the Cable Networks. This segment continues to drive overall company results, generating nearly 65% of News Corporation's total segment operating income. Third quarter Cable segment operating income contributions increased 15% over year-ago levels to $846 million, with double-digit earnings growth at the RSN, FOX News, FX, National Geographic and the FOX International Channels. This growth continues to be top line-driven with segment revenues up 16%. Affiliate fees at the Cable Networks increased 18% over last year's level, with domestic channel affiliate fees up 15%, driven by our successful affiliate renewal negotiations in the first half of the fiscal year. International fees were up 31% with about half of the international affiliate revenue increase driven by organic growth and the remaining reflecting the consolidation of the Fox Pan American Sports upon the buyout of our partners in December.

Third quarter advertiser revenues for the segment were up 9% over last year level, with domestic ad growth of 10% and international growth of 7%. Although all our major domestic channels delivered year-over-year increases, ad sales increases were particularly strong at the FOX News Channel and National Geographic.

On the international side, double-digit advertising growth for the Fox International Channels continues to reflect strength in Latin America and Asia. And at STAR, much of the double-digit local currency advertising growth was offset on a U.S. dollar basis due to the comparative weaker Indian Rupee.

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