It's a new fiscal year for the media behemoth that Rupert Murdoch calls News Corp. (NYSE:NWS). Will it be as nice as the previous fiscal year? Let's take a look at how this one has started off.
For the first quarter, News Corp. reported a net loss of $433 million ($0.13 per diluted share), compared with a net profit of $625 million ($0.21 per diluted share) in the year-ago period. Doesn't sound so good, does it? Hold on, though, because this loss was generated by an accounting charge related to the value of the company's television station licenses. So if you exclude the effect of this non-cash item, you will see that the earnings are actually better than what they appear to be on the surface.
In this context, News Corp. earned $580 million, or $0.18 per diluted share, on a 10% increase in revenues, which came in at $5.7 billion. Consolidated operating income, meanwhile, rose 19% to $909 million. The 7% drop in net income was primarily driven by the line for income tax expense, whose value more than doubled compared with last year.
The reduction in net income doesn't trouble me. I like that News Corp. was able to build on last year's performance and deliver double-digit growth in revenues and operating income. It proves that the conglomerate is capable of leveraging its content and distributional platforms for purposes of shareholder value.
Most of the operating segments continue to show healthy returns. Operating income from filmed entertainment grew by 26%, driven by new titles to the home video market (such as the horror flick Hide and Seek) and product from the library (such as Napoleon Dynamite). Cable networks saw a 19% jump in operating income; Fox News Channel led the way with a 64% rise in its profit alone. The hurricanes may have cost extra to cover, but they apparently brought in the viewers. The television group, however, is still struggling as the Fox network tries to figure out how it can score enough eyeballs to offset increases in programming costs.
Free cash flow dropped by a third to $298 million, but as with the earnings, I'm just not compelled in this case to be spooked by it. The underlying health of the conglomerate seems to check out, and I believe that some of the initiatives News Corp. is taking in regard to current opportunities with the Internet have a decent chance of panning out. Online brands such as IGN and Myspace.com should prove to be interesting acquisitions.
News Corp. continues to thrive among big concerns like Disney (NYSE:DIS), Time Warner (NYSE:TWX), and Viacom (NYSE:VIA). Shareholders should look on these results with a positive mindset and consider Murdoch's vision a potentially rewarding long-term bet.
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Fool contributor Steven Mallas owns shares of Disney. The Fool has a disclosure policy.
