News Corp. Gets Scooped Bill Mann (TMF Otter)
August 18, 1999
Rupert Murdoch's media conglomerate News Corporation (NYSE: NWS) reported second quarter earnings of $0.21 per ADR (American Depository Receipt) before one-time expenses, $0.03 behind the First Call mean estimate. Revenues were essentially flat with last year's results, as strong year-over-year growth in the Filmed Entertainment division was offset by higher losses in its Fox Broadcasting Network subsidiary, lower newspaper sales, and increased investments in its Internet properties. Operating income for the quarter trailed same-quarter results from 1998 by 11%, partially due to the sale of TV Guide to United Video Satellite Group. After the release, News Corp. traded down fractionally on heavy volume.
News Corp., based in Sydney, Australia, operates multiple self-standing businesses, including satellite television in Mexico, Twentieth Century Fox Television and Film, British newspapers (including The Sun and The Times), Philippine Long Distance Telephone, and the Los Angeles Dodgers. News Corp. also holds partial ownership in such "Associated Entities" as British Satellite Television provider BSkyB, the New York Knicks, Madison Square Garden, and ESPN STAR Sports in Asia.
News Corp.'s aggressive acquisition and business development strategies and complex corporate structure make year-to-year growth rates a tenuous gauge of the company's performance. Rupert Murdoch's strategy of purchasing related entities and combining strengths is well established, and News Corp. continues to spend freely on ongoing as well as new ventures.
News Corp.'s subsidiaries contributed $3 million to the recent quarter's bottom line, as compared to $12 million from Q4 1998. The largest portion of the decrease came from BSkyB, which contributed $44 million in profits previously, but only $2 million this quarter due largely to a significant increase in marketing and new product rollout expenses.
Internally, News Corp. invested nearly $1.42 billion in capital costs in the last quarter, a full 109% above its net operating profit for the quarter. Offsetting this expenditure is the $970 million netted by the sale of TV Guide. The company utilized this capital to invest $300 million in a new media venture capital fund called epartners, to repurchase $495 million in debt from MCIWorldcom, and to acquire the remaining interest in Fox Liberty Networks from Liberty Media (NYSE: LMG.A).
Of extreme importance is the war chest News Corp. has developed, with cash holdings nearing $5 billion. The company netted more than $2.6 billion in its sale of 13.4% of Fox Entertainment Group (NYSE: FOX) in October 1998. Many investors remain wary of the company's enormous short and long-term debt, which currently exceeds $17 billion, far surpassing its entire revenue base from 1998. This number may be slightly deceptive as Australian Generally Accepted Accounting Principles (GAAP) does not break out certain liabilities such as payables, treating them as short-term financing. Much more telling is the company's debt-to-equity ratio, which at 0.64 is in the same range as one of its largest competitors: Disney (NYSE: DIS). Still, given Murdoch's tendency to open his checkbook and spend for the future, it doesn't seem likely that this debt load will become a priority in the near future.
Murdoch has recently been concentrating News Corp.'s investment capital on satellite services and Internet properties, and has shown a willingness to take reduced gains over the short term for the long-term benefit. In doing so, Murdoch is counting upon these two media to reign supreme over broadcast and cable. If he turns out to be right, we may see more of the world's most valuable brands under the News Corp. banner.