Twenty-First Century Fox (FOX +0.00%)(FOXA +0.00%) reported fourth-quarter and full-year results after the market closed on Aug. 9. The following table provides a comparison between key fourth-quarter metrics with those from the quarter in fiscal 2016:
| Metric | Q4 2017 | Q4 2016 | Change Year Over Year |
|---|---|---|---|
| Revenue | $6.75 billion | $6.65 billion | 1.5% |
| Net income | $501 million | $567 million | (11.6%) |
| Adjusted EPS | $0.36 | $0.45 | (20%) |
Data source: Twenty-First Century Fox.
The average analyst estimate had called for EPS of $0.35 on $6.77 billion in sales, so the company beat the earnings estimate but fell short of the sales estimate.
The drop in quarterly earnings looks quite worrying on its face. However, the fourth quarter of fiscal 2016 saw the company's adjusted EPS enjoy a $0.07-per-share boost thanks to a favorable tax ruling. With that benefit taken out, quarterly EPS was down roughly 5% year over year. Looking at the full-year picture, annual EPS increased roughly 14% to $1.61 on sales of $28.5 billion -- up roughly 4% year over year. Read on for a more in-depth breakdown of Fox's fourth-quarter and full-year results.
Image source: Getty Images.
Cable networks stole the show
Despite a weak film slate, Fox was able to record earnings growth in the fourth quarter thanks to improved domestic revenues from channels including Fox News, FX, and FS1, as well as a 9% increase for both international advertising and affiliate fees. The following table breaks down the company's segment performance for the fourth quarter:
| Segment | Revenue | Operating Income Before Taxes, Deductions, and Amortizations (OIBDA) |
|---|---|---|
| Cable network programming | $4.3 billion | $1.4 billion |
| Television | $1.0 billion | $137 million |
| Filmed entertainment | $1.8 billion | ($22 million) |
| Other, corporate, and eliminations | ($387 million) | ($106 million) |
Data source: Twenty-First Century Fox.
Fourth-quarter operating income for the cable networks segment grew roughly 19% year over year, while television operating income was down 5%, and filmed entertainment shifted into the red after posting $164 million in OIBDA in the prior-year period.
Fox's cable network segment saw a 10% sales increase, driven by higher advertising sales and fees cable carriers paid to the company. However, there was also a 7% increase in expenses at the segment. According to the company, the increase in expenses was driven by higher costs for sports programming and production and marketing costs for National Geographic. The cable networks segment delivered these impressive results even as the number of overall domestic paid-TV subscribers fell roughly 500,000 in the quarter.
In the filmed-entertainment segment, both television content and movies contributed to year-over-year declines, but theatrical sales were probably the bigger problem point. Fox's film slate was weak compared with the prior-year period, and with soft sales for key 2017 releases including Alien: Covenant, Snatched, and Diary of a Wimpy Kid: The Long Haul, weighed on performance in the recently wrapped quarter and fiscal year.
What's next for Fox?
This comment from Executive Chairmen Rupert Murdoch and Lachlan Murdoch lays out the company's general outlook on its future:
The investment we have made in our video brands, and in programming that truly differentiates, is proving to be the right strategy. It is driving the value of our brand portfolio across both established and emerging distribution platforms and reflects our deep commitment to creative excellence across all of our entertainment production businesses. In addition, the outstanding performance of our live news and sports programming drove advertising growth for the year and continues to set our business apart. What we achieved in 2017 sets us up well for this year and beyond.
Thus far, strong ratings for the company's core domestic channels and international growth have made its cable networks segment resilient in the face of cord-cutting, but the likelihood of an eroding cable base remains a looming challenge. With regard to movies, Fox recently suffered another setback because of the underperformance for War for the Planet of the Apes and is in need of new hit franchises -- though it does have a number of promising projects in the X-Men and Avatar series on the horizon.
Fox investors should also watch the company's attempt to complete its purchase of Sky, a telecommunications and media company that primarily operates in Europe. The media industry, along with technology and telecom, is undergoing a big consolidation push, and closing the Sky deal could be important to Fox's competitive future in light of AT&T's pending merger with Time Warner and Disney's push to launch its own over-the-top streaming services.
