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Discovery Communications Inc. Earnings Rise on Advertising Growth

By Demitri Kalogeropoulos – May 5, 2015 at 9:22AM

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Profits were surprisingly high in the quarter that just closed.

Television network giant Discovery Communications (DISC.A) today posted first-quarter earnings results. Broadly speaking, the company's sales figures came in just below expectations while profit growth was surprisingly high.

Here's a look at how Discovery's results stacked up against Wall Street's first-quarter targets:

Metric Expected Actual
Revenue $1.55 billion $1.54 billion
Profit  $0.33 per share $0.37 per share

Source: Yahoo! Finance and Discovery financial filing.

Q1 net income of $250 million was roughly 9% higher than $230 million in the year-ago quarter. 

International growth
The bright spot was again Discovery's booming international segment. That unit booked 9% higher sales, excluding currency swings. The boost was powered by a hefty 12% jump in advertising revenue as the global audience continues to grow, and as Discovery chipped away at competitors' market share. 

Source: Discovery Communications.

Ad pricing and volume growth were particularly strong in Europe. At the same time, Discovery logged healthy subscriber growth in its Latin America region. "Our strategy of investing in and owning world-class content to leverage across our unparalleled global distribution platform continues to drive operating momentum and strong financial results," said CEO David Zaslav in the earnings press release.

Soft domestic market
The U.S. market wasn't quite as strong, though. Yes, advertising revenue swung from a 5% drop last quarter to a 1% gain this quarter. However, that improvement had more to do with higher prices than anything else. Discovery delivered fewer ads in the first quarter on presumably lower overall ratings.

Instead of pointing to an imminent ad rebound, today's results were more consistent with management's expectation that the U.S. market would remain "tepid" in 2015. In fact,  Zaslav described the local environment as "challenging" in the press release.

Yet profitability improved substantially in the U.S. business despite those challenges. Discovery's adjusted operating margin rose by 2 percentage points to 57%, compared to the international segment's 29%. And overall profit jumped higher by 10% -- reversing the prior quarter's 7% dip. That gain goes a long way toward explaining how Discovery managed 12% higher earnings per share this quarter while expectations were for flat overall profits.

Reaffirmed outlook
Management also today reiterated its full-year sales and earnings outlook. Both metrics are expected to grow in the high single-digit to low double-digit range through 2015.

Investors can look for the company to focus on further boosting a worldwide audience that hit 2.6 billion viewers across 220 countries at the end of 2014. "I'm extremely pleased with our strong performance this quarter and the numerous opportunities Discovery has in the months and years ahead," Zaslav said.

Demitrios Kalogeropoulos owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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