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Twenty-First Century Fox, Inc. (“21st Century Fox” or the “Company” — NASDAQ: FOXA, FOX) reported financial results for the three months ended December 31, 2016.
The Company reported quarterly income from continuing operations attributable to stockholders of $857 million ($0.46 per share), as compared to $674 million ($0.34 per share) reported in the prior year quarter. Excluding the net income effects of Other, net and adjustments to Equity losses of affiliates, including adjustments related to Sky plc (“Sky”) and Endemol Shine Group, adjusted quarterly earnings per share from continuing operations attributable to stockholders1 was $0.53, a 20% increase over the $0.44 reported in the same quarter of the prior year.
The Company reported total quarterly revenues of $7.68 billion, a $307 million, or 4%, increase from the $7.38 billion of revenues reported in the prior year quarter. This revenue growth reflects higher affiliate and advertising revenues at both the Cable Network Programming and Television segments partially offset by lower content revenues at the Filmed Entertainment segment. The adverse impact of foreign exchange rates impacted quarterly revenue growth by $84 million.
Quarterly total segment OIBDA2 of $1.99 billion increased by $264 million, or 15%, from the $1.73 billion reported in the prior year quarter. This increase was due to higher contributions from all of the Company’s operating segments with particularly strong growth reported at the Television and Filmed Entertainment segments. The adverse impact of foreign exchange rates impacted quarterly OIBDA growth by $44 million, or 3% in total.
Commenting on the results, Executive Chairmen Rupert and Lachlan Murdoch said:
“We delivered a second consecutive quarter of double-digit earnings growth, driven by solid increases in affiliate and advertising revenues across cable and television. Our record-breaking post-season baseball run underscores the immense value of our sports programming, as well as the broader competitive advantage we have built through our other leadership positions in entertainment and news. We also continue to excel creatively, with our television studio producing the number one series on six networks, FX Networks leading all networks in Golden Globe wins and our film studio recognized with 7 Academy Award nominations. Additionally, during the quarter we announced an offer to purchase the approximate 61% interest in Sky we do not already own. We expect the transaction will generate significant adjusted earnings per share and free cash flow accretion and it provides clarity on our near-term capital allocation priorities.”
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1 | See page 14 for a reconciliation of reported income and earnings per share from continuing operations attributable to stockholders to adjusted income and adjusted earnings per share from continuing operations attributable to stockholders, which may be considered non-GAAP financial measures. | ||
2 | Total segment operating income before depreciation and amortization (“OIBDA”) may be considered a non-GAAP financial measure. See page 11 for a description of total segment OIBDA and for a reconciliation from revenues to total segment OIBDA and from total segment OIBDA to income from continuing operations attributable to stockholders. | ||
REVIEW OF SEGMENT OPERATING RESULTS | ||||||||||||||||
| Three Months Ended December 31, | Six Months Ended December 31, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| US $ Millions | ||||||||||||||||
| Revenues: | ||||||||||||||||
| Cable Network Programming | $ | 3,967 | $ | 3,703 | $ | 7,777 | $ | 7,167 | ||||||||
| Television | 1,918 | 1,716 | 2,956 | 2,765 | ||||||||||||
| Filmed Entertainment | 2,269 | 2,361 | 4,176 | 4,146 | ||||||||||||
| Other, Corporate and Eliminations | (472 | ) | (405 | ) | (721 | ) | (626 | ) | ||||||||
| Total revenues | $ | 7,682 | $ | 7,375 | $ | 14,188 | $ | 13,452 | ||||||||
| Segment OIBDA: | ||||||||||||||||
| Cable Network Programming | $ | 1,330 | $ | 1,250 | $ | 2,714 | $ | 2,556 | ||||||||
| Television | 376 | 279 | 567 | 475 | ||||||||||||
| Filmed Entertainment | 389 | 302 | 700 | 451 | ||||||||||||
| Other, Corporate and Eliminations | (101 | ) | (101 | ) | (196 | ) | (217 | ) | ||||||||
| Total Segment OIBDA(a) | $ | 1,994 | $ | 1,730 | $ | 3,785 | $ | 3,265 | ||||||||
(a) | Total segment OIBDA may be considered a non-GAAP financial measure. See page 11 for a description of total segment OIBDA and for a reconciliation from revenues to total segment OIBDA and from total segment OIBDA to income from continuing operations attributable to stockholders. | |||
CABLE NETWORK PROGRAMMING
Cable Network Programming quarterly segment OIBDA increased 6% to $1.33 billion, driven by a 7% revenue increase on higher affiliate and advertising revenues partially offset by an 8% increase in expenses. The increase in expenses was primarily due to higher Major League Baseball (“MLB”) sports rights costs at FOX Sports 1 (“FS1”) and higher National Basketball League sports rights costs at the regional sports networks (“RSNs”). Additionally, the inclusion of a full quarter of results from the National Geographic non-channels businesses, which were acquired in November 2015, had a 2-percentage point impact on both revenue and expense growth in the quarter. Foreign exchange fluctuations, primarily in Latin America, adversely impacted segment OIBDA growth by 2%.
Domestic affiliate revenue increased 7% reflecting continued contractual rate increases led by FX Networks, FS1, Fox News and the RSNs. Domestic advertising revenue grew 12% over the prior year period reflecting higher ratings at Fox News and higher postseason baseball ratings at FS1. Domestic OIBDA contributions increased 12% over the prior year quarter led by higher contributions from Fox News and FX Networks.
International affiliate revenue increased 5% driven by strong local currency growth of 12%, with double digit growth reported at both Fox Networks Group International (“FNGI”) and STAR India, partially offset by negative currency impacts from the strengthened U.S. dollar. International advertising revenue decreased 6% as local currency growth at FNGI was more than offset by lower local currency advertising revenues at STAR India due to the effect of the Indian government demonetization initiatives on the general advertising market and the negative currency impacts from the strengthened U.S. dollar. Quarterly OIBDA at the international cable channels decreased 13% from the prior year quarter primarily reflecting lower advertising revenues and the negative impact of foreign exchange.
TELEVISION
Television generated quarterly segment OIBDA of $376 million which was 35% higher than the prior year’s corresponding result. Quarterly segment revenues were 12% higher than the prior year quarter led by higher sports advertising revenues, higher local political advertising spending at the television stations, higher retransmission consent revenues, higher content revenues at the FOX Broadcast Network and revenues generated by the television stations to permit the commercial use of adjacent wireless spectrum in one of our markets. Strong growth in sports advertising revenues reflects the success of the World Series which benefited from two additional games as compared to the prior year as well as strong ratings, particularly game 7, which was the most watched baseball game in 25 years. The overall revenue increase was partially offset by higher expenses led by higher National Football League and college football sports programming costs and increased entertainment programming and marketing costs in connection with the launch of the Fall broadcast season.
FILMED ENTERTAINMENT
Filmed Entertainment generated quarterly segment OIBDA of $389 million, an $87 million, or 29%, increase from the $302 million reported in the same period a year-ago. The OIBDA increase in the current quarter was driven primarily by increased contributions from the film studio reflecting lower theatrical releasing costs from a comparatively lower number of films released in the current quarter, the worldwide theatrical and home entertainment performance of Miss Peregrine’s Home for Peculiar Children, and the worldwide home entertainment and pay television performance of Deadpool. Quarterly segment revenues decreased $92 million to $2.27 billion, primarily reflecting lower worldwide theatrical revenues partially offset by higher television production revenues led by the subscription video-on demand licensing of various titles.
REVIEW OF EQUITY (LOSSES) EARNINGS OF AFFILIATES’ RESULTS
The Company’s share of equity (losses) earnings of affiliates is as follows:
| Three Months Ended December 31, | Six Months Ended December 31, | |||||||||||||||||
| % Owned | 2016 | 2015 | 2016 | 2015 | ||||||||||||||
| US $ Millions | ||||||||||||||||||
| Sky | 39%(1) | $ | 65 | $ | 100 | $ | 162 | $ | 210 | |||||||||
| Other equity affiliates | Various(2) | (106 | ) | (88 | ) | (168 | ) | (163 | ) | |||||||||
| Total equity (losses) earnings of affiliates | $ | (41 | ) | $ | 12 | $ | (6 | ) | $ | 47 | ||||||||
(1) | Please refer to Sky’s earnings releases for detailed information. | |||
(2) | Primarily comprised of Endemol Shine Group, Hulu and Tata Sky | |||
Quarterly equity losses of affiliates were $41 million as compared to $12 million of equity earnings of affiliates reported in the same period a year-ago. The $53 million decrease primarily reflects lower equity earnings for Sky and increased losses reported at Endemol Shine Group. The decrease in equity earnings from Sky was a result of the strengthening of the U.S. dollar against the Pound Sterling as well as higher sports programming costs.
OTHER ITEMS
Sky acquisition
In December 2016, the Company announced that it has reached agreement with Sky, in which the Company currently has an approximate 39% interest, on the terms of a recommended pre-conditional cash offer by the Company for the fully diluted share capital of Sky which the Company and its affiliates do not already own at a price of £10.75 per Sky share or approximately $15 billion (the “Acquisition”). The independent committee of Sky’s Board of Directors has announced that it intends to recommend unanimously that unaffiliated Sky shareholders vote in favor of the Acquisition. The Acquisition is subject to customary closing conditions, including regulatory approvals and the approval of Sky’s shareholders, and is expected to close on or before December 31, 2017.
Share repurchases
During the quarter, the Company repurchased 4.8 million shares of Class A Common Stock for $132 million. As a result of the stock repurchase program, diluted weighted average common stock outstanding of 1.85 billion declined 5% from the 1.96 billion in the prior year quarter. As of the end of the quarter, the Company’s remaining buyback authorization was $3.1 billion. The authorization may be modified, extended, suspended or discontinued at any time.
Dividends
The Company has declared a dividend of $0.18 per Class A and Class B share. The dividend declared is payable on April 19, 2017 with a record date for determining dividend entitlements of March 15, 2017.
