Source: Discovery.

Television network giant Discovery Communications (NASDAQ:DISC.K) is scheduled to post its second-quarter earnings results on Wednesday, Aug. 5. Broadly speaking, expectations are for a slight improvement in sales as profits shrink by nearly 20%.

MetricQ2 2014Q2 2015*
Revenue $1.61 billion $1.67 billion
Profit $0.55 per share $0.48 per share

*Q2 2015 is the average target of the 22 Wall Street analysts who cover the stock. Source: Yahoo! Finance and Discovery financial filings.

The U.S. business
Commercial sales account for more than half of Discovery's business, making the health of the ad market a key metric for investors to follow. And advertising has been weak in the U.S. lately. While ad sales ticked higher last quarter after falling by 5% in the prior quarter, all of the gain came from higher prices as Discovery sold fewer overall ads. The good news is that a strong content portfolio protected the network from the worst of the industry's struggles: Ad deliveries were down only slightly despite an 8% drop for the overall market.

Management said in May that it expects its advertising growth to stay "tepid" and plug along at last quarter's pace for the rest of 2015. But that projection came before the ad upfront sales period, which has passed. So we should get an important update to that forecast on Wednesday.

Meanwhile, distribution sales have been growing at a solid clip, up 8% last quarter compared to 6% through 2014. Discovery negotiated substantially higher rates from major TV providers and bagged a deal to provide a package of popular content to streaming video giant Hulu. Those agreements should continue to help the distribution fee side of the business pick up any slack from advertising weakness.

International growth
The large investments Discovery has made in its international business are already starting to pay dividends for investors. Revenue from outside the U.S. spiked higher by 9% last quarter, excluding currency swings, as the average audience grew by 10%. "We're creating big brands, compelling stories and characters, and taking them around the world," CEO David Zaslav told investors last quarter. 

Gold Rush has been a popular show for Discovery both in the U.S. and internationally. Source: Discovery.

To keep that good momentum going, Discovery is aiming to focus on producing content that can dominate in the U.S. market as well as internationally. It has seen early success at that goal with global hits like Gold Rush and Fast N' Loud. Shareholders should see content and ratings improvements eventually help this division's profitability rise from its current 30% margin toward the stellar 57% profit margin that Discovery's U.S. business generates.

Outlook updates
Wall Street is targeting a 4% sales rise for Discovery's full 2015 fiscal year as earnings improve to $1.75 per share from last year's $1.66 per share. Meanwhile, management's latest forecast, provided in May, calls for sales and profits to improve in the "single to low double digit range" for the year. But it is likely that new information about the U.S. advertising market will give executives and investors more specifics on how the business should perform this year.