News Corp. Says Fourth-Quarter Profit Will Fall on Flagging TV, Film Units

News Corp., owner of the Twentieth Century Fox film studio, said fiscal fourth-quarter operating income will fall from a year earlier on flagging performances by the film division and the Fox broadcast network.

David DeVoe, chief financial officer of New York-based News Corp., said costs for new movie releases and tough comparisons will hurt results. At the Fox broadcast network, higher production spending, lower revenue and increased marketing expenses for summer TV shows will be a drag on profit, he said.

“Despite the solid home entertainment performance forecasted for ‘Avatar,’ we are expecting the film segment to be down approximately $100 million from last year principally due to year-over-year timing of releases,” DeVoe said today on a conference call.

Analysts were forecasting an increase in profit, with 13 projecting earnings of 25 cents on average, a gain from 19 cents a year earlier excluding some items. Sales are expected to increase 6.9 percent to $8.2 billion, the average of 11 estimates.

“The fly in the ointment, it’s a very short-term fly, is the timing of film releases in the quarter is very deleterious to profit,” Larry Haverty, a portfolio manager at Rye, New York- based Gamco Investors Inc., said in an interview with Bloomberg Television. Gamco owns 13.9 million Class A shares of News Corp.

The forecast followed third-quarter results today that beat analysts’ estimates on the 3-D movie “Avatar” and higher cable profit.

‘Not Indicative’

“This upcoming fourth-quarter comparison is not indicative of the overall growth momentum of our businesses,” DeVoe said.

News Corp. fell 65 cents, or 4.2 percent, to $14.75 in extended trading. The shares lost 64 cents to $15.40 in regular Nasdaq Stock Market trading before results were announced.

Third-quarter net income fell to $839 million, or 32 cents a share, from $2.73 billion, or $1.04, a year earlier, when News Corp. had a gain from asset sales and a tax benefit, the company said in a statement. Profit exceeded the 23-cent average of 14 analysts’ estimates compiled by Bloomberg.

Revenue rose 19 percent to $8.79 billion, also topping estimates. Operating income increased 55 percent to $1.25 billion in the quarter ended March 31.

News Corp. is evaluating uses of its cash, which totaled $8.18 billion at the end of the quarter, and is considering share repurchases and dividends, Chairman and Chief Executive Officer Rupert Murdoch said on the call.

Studio Profit

Filmed entertainment drove profit in the third quarter, increasing 70 percent to $397 million.

“Avatar,” James Cameron’s 3-D science-fiction adventure, produced the bulk of its theatrical revenue in the period, en route to becoming the top-grossing movie ever.

The film has taken in $2.72 billion in worldwide box-office receipts since its Dec. 18 release, according to researcher Box Office Mojo. News Corp. began selling the film on Blu-ray and DVD April 22 in the U.S. and Canada.

Local TV station revenue increased 18 percent in the quarter, driven by automobile and telecommunications advertising, while the Fox broadcast network’s ad sales dropped amid a slide in ratings.

Cable network operating income climbed 38 percent to $588 million, as Fox News’s profit gained 31 percent on affiliate fees and higher ad sales. Profit also increased at the regional sports networks, FX and Fox international channels.

News Corp.’s Wall Street Journal sparked a turf war April 26 when it introduced a local New York section to lure readers and advertisers from the New York Times.

The newspaper unit’s operating income rose more than fourfold to $131 million on 10 percent ad gains at U.K. publications, 25 percent higher ad revenue at the Journal and favorable foreign exchange between the Australian dollar and U.S. dollar. Anthony DiClemente, an analyst with Barclays Capital, expected newspaper operating income of $83.9 million.

To contact the reporter on this story: Sarah Rabil in New York at srabil@bloomberg.net

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