A rapidly shifting media landscape has convinced Discovery Communications (DISCK +0.00%) (DISCA +0.00%) (DISCB +0.00%) to make some aggressive moves lately, including acquiring rival Scripps Networks, restructuring its business, and pouring cash into its online distribution platform.
In third-quarter results released this week, these initiatives contributed to generally strong sales and earnings for the pay-TV specialist, even though profits fell significantly.
Let's take a closer look at the headline metrics:
|
Metric |
Q3 2018 |
Q3 2017 |
Year-Over-Year Change |
|---|---|---|---|
|
Revenue |
$2.6 billion |
$1.7 billion |
57% |
|
Net income |
$135 million |
$223 million |
(40%) |
|
Earnings per share |
$0.16 |
$0.38 |
(58%) |
Data source: Discovery's financial filings.
What happened this quarter?
Lifted by its recent $15 billion acquisition of Scripps Networks, revenue jumped nearly 60% to $2.6 billion. Discovery's underlying growth trends were strong, too, thanks to robust advertising and distribution results in both the U.S. and international segments.
Image source: Getty Images.
Highlights of the quarter included:
- After adjusting for the impact from the merger and from swinging exchange rates, Discovery's organic sales rose 2% as revenue climbed 4% in the U.S. and improved 2% internationally. These gains were partially offset by losses in its education content division.
- The pool of subscribers fell 5% across the pay-TV portfolio, which was consistent with the prior quarter. However, Discovery managed higher advertising sales in the U.S. to mark a turnaround from past results. Distribution revenue was roughly flat as higher rates were offset by a shrinking subscriber base.
- Discovery posted reduced expenses, in part thanks to savings from operating a combined business with Scripps Networks. As a result, adjusted earnings rose at a much faster rate than sales.
- Tax and interest expenses related to the merger pushed net income lower for the period.
What management had to say
In a press release, executives described a business that was meeting their big-picture targets. "Our solid third quarter results demonstrate the strength of our brands and unmatched multi-platform distribution network," CEO David Zaslav said, "as we continue to position our broad suite of [intellectual property] to maximize value and extend our global presence."
While profits have been hurt by merger-related costs in recent quarters, management expressed confidence that this is just a temporary hurdle. "We continue to drive organic growth opportunities across our diverse portfolio, further positioning us for continued cash flow generation and additional value creation," said Zaslav.
Looking forward
The most encouraging sign for the business in these results is the fact that Discovery managed to grow despite the steady transition of people out of the pay-TV ecosystem that has traditionally delivered all of its sales. Its larger international footprint is cushioning the blow from that transition, and the company is also finding success in marketing content from shows like Gold Rush and House Hunters toward online audiences.
The global business might not generate as high a return as shareholders enjoyed before internet-delivered content started hurting the broadcast-TV industry. But its latest growth initiatives are increasingly looking like a promising path toward steadily higher sales and cash flow.
