NEWS CORPORATION has reported a big lift in net profit despite a weak result from Australia's newspapers because of poor advertising and the shift of readers online.
Mastheads, such as The Australian and Sydney's Daily Telegraph, as well as pay-TV provider Sky Italia, were two businesses that were "clearly feeling the impacts of economic woes", News Corp's chief operating officer Chase Carey said.
Its publishing unit, which includes Australian and UK newspapers and book publisher HarperCollins, reported first-quarter earnings before interest and tax (EBIT) of $US57 million, down 48 per cent from the previous similar period.
Publishing blotted what was otherwise a strong first-quarter result, with net profit for the three months to September 30 of $US2.23 billion, more than triple the $US738 million achieved in the previous year.
Net profit, a little above market expectations, was boosted by the sale of News Corp's stake in software company NDS in July, which produced a $US1.4 billion gain.
Market players cheered the result, with News Corp the best-performer on the S&P/ASX50, climbing 3.2 per cent to $24.10.
While the results did not break out the performance of its Australian arm, News Corp said there were lower advertising revenues across all publishing divisions.
"In Australian publishing, the decline in display and classified advertising has clearly hit these businesses," Mr Carey said during a conference call with analysts.
"As discussed previously, we have major plans already being undertaken by our management team to address these shifts."
In June, News Ltd chief executive Kim Williams announced plans to reduce staff, consolidate its newsrooms and cut its 19 divisions on Australia's east coast to five over the next two years.
Part of the restructure would result in a "one city, one newsroom" concept, with News Ltd's metropolitan daily, Sunday and community publications run as one unit.
Mr Williams did not put a figure on the number of jobs to go.
"It seems as if the publishing business in Australia is struggling with little signs of a turnaround," Morningstar analyst Michael Corty said.
"Given the small size relative to the whole company, I don't think it is a big deal for the overall business."
News Corp booked a further $US67 million charge related to the costs of the ongoing investigation into the phone hacking scandal in the UK, which resulted in the closure of the News of The World tabloid.
This was on top of the $US224 million incurred in 2011/12, relating to legal fees and compensation, among other things.
The company has already announced plans to split its entertainment and publishing units into separate businesses.
Chief financial officer David DeVoe said EBIT was expected to grow in the "high singles to low double-digit range" in 2012/13, from an adjusted $US5.6 billion in 2011/12.
News Corp's cable network programming division was again the strongest performer in the diversified media group, with first quarter EBIT rising 23 per cent to $US953 million.
Its film and television divisions also posted earnings growth.
News Corp said total first-quarter revenue was $US8.14 billion, up 2 per cent.
Frequently Asked Questions about this Article…
What drove News Corp’s big net profit lift despite weak newspaper results?
News Corp reported a net profit of US$2.23 billion for the quarter to September 30, more than triple the prior year, largely boosted by the July sale of its stake in software company NDS, which produced a US$1.4 billion gain.
How did News Corp’s publishing unit perform and why did earnings fall?
News Corp’s publishing unit — which includes Australian and UK newspapers and HarperCollins — reported first‑quarter EBIT of US$57 million, down 48% year‑on‑year. The decline was attributed to lower advertising revenues and the shift of readers online, hitting display and classified advertising in Australian publishing.
What restructuring plans has News Ltd announced for its Australian publishing business?
In June, News Ltd chief executive Kim Williams announced plans to reduce staff, consolidate newsrooms and cut its 19 divisions on Australia’s east coast to five over the next two years. The restructure includes a ‘one city, one newsroom’ approach for metropolitan daily, Sunday and community publications, though no specific job numbers were given.
How material is the Australian publishing weakness for News Corp investors?
Morningstar analyst Michael Corty said the Australian publishing business appears to be struggling with little sign of a turnaround, but because publishing is small relative to the whole company, he doesn’t view it as a major issue for News Corp’s overall business.
Did the phone hacking investigation affect News Corp’s financial results?
Yes. News Corp booked an additional US$67 million charge related to the ongoing investigation into the UK phone hacking scandal and the closure of the News of the World tabloid. That was on top of US$224 million incurred in 2011/12 for legal fees, compensation and related costs.
Which News Corp divisions showed the strongest earnings growth?
News Corp’s cable network programming division was the strongest performer, with first‑quarter EBIT rising 23% to US$953 million. Its film and television divisions also posted earnings growth during the period.
What are News Corp’s earnings expectations for the coming year?
Chief financial officer David DeVoe said adjusted EBIT was expected to grow in the ‘high singles to low double‑digit range’ in 2012/13, from an adjusted US$5.6 billion in 2011/12.
How did the market react to News Corp’s quarterly results and what was total revenue?
Markets cheered the result: News Corp was the best performer on the S&P/ASX50, climbing 3.2% to A$24.10. Total first‑quarter revenue was US$8.14 billion, up 2% year‑on‑year.
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