News Corp shares fell in local trading today - despite the media group beating second quarter earnings expectations - after the company downgraded its outlook due to underperforming businesses including its Australian publishing arm.
Shares were down 70 cents, or 2.55 per cent, at $26.79 in early afternoon trade.
News Corp’s chief financial officer David DeVoe said total segment operating income for the current financial year was now expected to rise “mid to high single digits” from last year’s $US5.6 billion result, compared to previous guidance it would rise “high single to low double digits”.
The main culprits are the underperforming Fox Network, its local arm News Ltd, and Sky Italia.
‘‘In Australia we have been hammered by an economy we keep hoping has hit bottom yet seems to find new lows,’’ said News Corp’s chief operating officer, Chase Carey.
‘‘This was clearly evident during the holiday season where we were unable to benefit from the seasonal advertising lift as we had in prior years. As stated earlier, we’re actively working to restructure this business for the future.’’
News Corp reported that revenue rose 5 per cent to $US9.43 billion ($9.06 billion) for the second quarter, while adjusted operating income rose 5 per cent to $US1.66 billion.
Mr Carey told analysts that the split of the the company was on track for end of this financial year.
On the publishing side, the company reported that an improved performance from its British newspapers, and contributions from book publishing acquisitions, “more than offset lower advertising revenues at the Australian newspapers”.
Ongoing investigations into the phone hacking scandal - and the closure of The News of the World - cost the company $US56 million for the quarter.
"News Corporation’s fiscal second quarter performance reflects our strong momentum. Double-digit gains in our Cable and Television businesses, along with improvements in our publishing segment, drove revenue and earnings growth even as we seized opportunities to invest in our core businesses for long-term and sustainable growth,” said executive chairman Rupert Murdoch.
“The strategies we executed against in the quarter continue to bolster News Corporation's competitive position and enhance our ability to benefit from global demand for content, especially sports programming. As we make progress toward the proposed separation of our entertainment and publishing businesses later this year, I am confident in the future prospects for both businesses.”
News Corp's Australian operation, News Ltd, posted a $A476.7 million loss for the financial year ending June 30, after slashing the value of its newspaper mastheads after a double-digit decline in revenues.
The company reported that revenue fell 11 per cent to $A2.6 billion, while operating income fell 23.5 per cent to $A493.6 million as "advertising revenues declined during the fiscal year, driven by negative consumer sentiment".
News Corp's cable network programming accounted for an operating profit of $US945 million and filmed entertainment $US383 million.
A big part of the profit jump came from gains posted in accounting for the company's increased ownership stakes in Fox Sports Australia and Fox Star Sports Asia. This added $US1.4 billion to profits.
The group saw a modest increase in publishing, a unit which includes The Wall Street Journal and other newspapers. The operating income for the segment was $US234 million, a $US16 million improvement from a year earlier, helped by improved results from British newspapers, the company said.
Among the disappointments in the past quarter were losses from its Sky Italia satellite TV, which Mr Carey attributed to "the economic crisis in Italy," and sports broadcasting, which we blamed on "a sports schedule which just didn't bounce our way".
Profits dipped at the company's film operations, reflecting negative comparisons to the prior year. The segment profit was $US383 million, from $US393 a year ago. The biggest contributor was Life of Pi, which has brought in some $US500 million in worldwide box office receipts, but the unit failed to keep up with the pace set last year from Rio, Rise of the Planet of the Apes and X-Men: First Class.
Protection from scandal
News Ltd, which was the springboard for Rupert Murdoch's global expansion, is due to be folded into the publishing business that will be spun off as a separate listed entity next year from News Corp's film and television business. The move is designed to protect News Corp's more valuable film and broadcast assets from the hacking scandal engulfing its newspapers in Britain.
In December last year, Australian Robert Thomson was named as the new head of the publishing arm.
Last week Mr Thompson announced that Anoushka Healy, group managing editor of The Times and Sunday Times in London has been named chief strategy officer.
William Lewis, one of the News Corp executives dealing with the fallout from the phone hacking scandal, has been named chief creative officer.
The report also confirmed that News Ltd paid $29.8 million for Alan Kohler's Australian Independent Business Media, publisher of Eureka Report and the Business Spectator website.
News Corp said in December that the company has applied for regulatory approvals and tax rulings required to enable the separation to be completed but ‘‘there can be no assurances given that the separation of the company’s businesses as described will occur’’.