21st Century Fox’s Cable Channels Lead to Profit Gains

21st Century Fox Inc., Rupert Murdoch’s film and television business, reported a fourth-quarter gain in operating profit in the company’s first report since spinning off News Corp.’s publishing operation.

Income from continuing operations rose to $977 million, or 42 cents a share, from $596 million, or 25 cents, a year earlier, New York-based Fox said in a statement. Sales climbed to $7.21 billion, beating the $7.12 billion average of 16 analysts’ estimates compiled by Bloomberg.

F/X, Fox News and other cable channels contributed to the growth, though lower broadcast-network ratings held profit in check for the TV unit. Earnings fell at the film division, which produced the box-office disappointment “The Internship,” as well as at its satellite-TV business in Italy, a markets with economic headwinds. Still, the results were rosier than expected, said Jaison Blair, a Telsey Advisory Group analyst.

“Management commentary heading into the spinoff may have been conservative,” said Blair, citing “strong results” in cable and satellite operations and lower-than-projected costs.

Fox’s Class A shares climbed as much as 5.7 percent to $33.02 in extended trading after the results were released. The stock had closed at $31.23 in New York.

June Spinoff

“The company not only delivered strong earnings and revenue growth led by our channels businesses, we also positioned ourselves for future success with strategic investments in our global channels businesses,” Murdoch, Fox’s chief executive officer, said in the statement.

Fox expects segment earnings excluding some items to grow in the high-single-digit to low-double-digit percentage range in fiscal 2014, Chief Financial Officer John Nallen said on a conference call.

The 82-year-old Murdoch, who also serves as chairman of both Fox and News Corp., split off the slower-growing publishing business from his film and TV operations on June 28, the end of the company’s fiscal year. The print-media business includes such papers as the Wall Street Journal and the New York Post.

Profit at the company’s cable division climbed 25 percent to $1.08 billion, while sales grew 16 percent. Fees from pay-TV systems rose 9 percent in the period, and advertising increased 4 percent, the company said.

Fox Sports 1

In a bid to boost growth, Fox is converting some specialty cable channels into networks with potentially wider appeal. Its Speed channel will become Fox Sports 1 on Aug. 17, while Fox Soccer on Sept. 2 changes to FXX, an entertainment channel targeted at younger audiences. The company also acquired an Ohio regional sports network and a minority stake in the YES Network, a New York cable channel that carries Yankees baseball games.

“Fox’s domestic channels, Fox cable and the Fox Broadcast Network have the scale, audience and content mix that should continue to support industry leading revenue and profit growth,” Michael Morris, an analyst at Davenport & Co. in Richmond, Virginia, wrote in a report.

Television profit fell to $213 million from $235 million a year earlier. Sales in the division were little changed at $1.1 billion, according to the company. TV results were dragged down by a 7 percent decline in advertising related to lower ratings for “X-Factor” and “American Idol,” Fox said.

Profit at filmed entertainment declined to $117 million from $140 million a year ago, even as the segment’s revenue in the period increased 2.9 percent to $2.04 billion.

Satellite Profit

The company’s satellite-TV systems saw profit fall 7.1 percent to $156 million, while sales gained 45 percent to $1.38 billion.

In the current fiscal year, growth at the cable division will be affected by $200 million in costs from starting Fox Sports 1, FXX and a sports network in Asia, as well as $100 million offset due to currency declines in India and Latin America, Nallen said.

Due to retransmission fees from pay-TV systems, the broadcast TV segment will grow, even after absorbing $150 million in increased programming and marketing costs, he said. The film studio will be down “a touch’” and satellite-TV will benefit from growth at Sky Deutschland, he said.

Murdoch and Nallen, along with Chief Operating Officer Chase Carey and Deputy Chief Operating Officer James Murdoch, will give more details on Fox’s strategy, priorities and operational plans to investors on Aug. 8 in Los Angeles.

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