Fox Stays Course as Rattled News Unit Remains Profit Source

  • Cable profit fell slightly on costs for sports, political news
  • Film earnings slump on marketing costs for big summer pictures

21st Century Fox Inc. executives vowed to keep the “unique and important voice” of No. 1-rated Fox News following the resignation of co-founder Roger Ailes last month, rejecting major changes at a network that remained a steady source of profit in the latest quarter.

James and Lachlan Murdoch, who took over leadership of 21st Century Fox from their father Rupert a year ago, told analysts on an earnings call Wednesday they acted swiftly to protect the highly profitable news channel and its employees when allegations against Ailes surfaced in the form of a harassment suit by a former anchor. The network, now led by Rupert Murdoch on an interim basis, is having its best year ever, they said.

“There is no desire to shift the position it has in the market,” James Murdoch, chief executive officer of 21st Century Fox, said in response to analysts’ questions. “It’s a very successful business, and we are undergoing a transition to new leadership that should not flag at all a transition of the underlying positioning or the strategy of the channels.”

The Murdochs’ response to concerns about Fox News, with Co-Chairman Lachlan Murdoch’s opening remarks on the call focusing on the cable channel, highlights the importance of the network to the Fox empire. Fox News, known for its conservative commentary, accounts for about a quarter of the company’s profit and ranks as the most watched U.S. cable network in the current TV season, buoyed by coverage of the U.S. presidential race.

Shares of Fox fell 4.9 percent to $25.72 at 12:19 p.m. Thursday after the New York-based company announced tepid results late Wednesday for the fourth quarter ended June 30. Profit excluding some items rose to 45 cents a share, including a 7-cent tax benefit, compared with the 37-cent average of analysts estimates. Revenue grew 7.1 percent to $6.65 billion, missing analysts’ projections of $6.68 billion.

Investors may also have been disappointed with the absence of a time frame for the company’s newest stock repurchase, set at $3 billion, and that Fox’s effective tax rate will move higher, according to notes Thursday from analysts.

Because of higher taxes, Barton Crockett of FBR Capital Markets & Co. lowered his fiscal 2017 earnings forecast. He now expects Fox will boost earnings by 5 percent to $1.82 a share, down from an earlier projection of $2.21.

Marci Ryvicker, at Wells Fargo Securities, cut her estimate for 2017 earnings before interest, taxes, depreciation and amortization to $7.16 billion from $7.41 billion. She sees profit of $1.94 a share, down from her earlier projection of $2.14, and said the buyback was smaller than some investors expected.

Fourth-quarter profit from cable was held back by rising program costs, for sports and political coverage during the U.S. presidential election.

  • Revenue from cable TV, the company’s biggest business, grew 9.9 percent to $3.92 billion. Profit fell slightly to $1.21 billion.
  • Broadcast revenue was $1.04 billion, up 5.5 percent. Profit in the division rose 27 percent to $144 million from $113 million.
  • Sales in filmed entertainment expanded 6.9 percent to $2.04 billion, while earnings slumped 39 percent to $164 million.
  • Total operating income fell 6 percent to $1.45 billion.

Fox said it spent heavily on cable programming, driven by soccer rights costs at FNG International and Major League Baseball, as well as streaming rights costs at regional sports networks. The company also had higher entertainment programming expenses at FNG International, higher marketing and digital costs at Star India, and higher spending for political coverage on Fox News.

This year, the company will make a new investment in programming with $200 million to refresh the schedule at the National Geographic network and for the expansion of original series at FX, officials said on the call.

Broadcast TV

The broadcast TV business, made up of the Fox Broadcast Network and local stations, was buoyed by higher retransmission fees and advertising in the entertainment division. 

Film studio profit fell as the division absorbed release costs for movies including “Independence Day” and “X-Men,” two expensive summer sequels that struggled at the box office.

Fox also said it will raise the annual dividend by 6 cents a share.

Before it's here, it's on the Bloomberg Terminal.