News Corp: 2014 Q3 result

News Corp’s third-quarter results reflect a well-established pattern, with strong performances from Book Publishing and REA Group offsetting weakness in News & Information Services (NIS).

Overlaid onto this pattern was a strengthening in the Australian dollar, which reduced the US dollar value of Australian revenue and earnings. Of course, for Australian investors, this effect is nullified when the US dollar earnings are translated back into Aussie dollars for the purpose of valuing the ASX-listed stock.

NIS saw earnings before interest, tax, depreciation and amortisation (EBITDA) fall 12% from the prior period due to weakness in print advertising and circulation declines, particularly at Dow Jones. On the flipside, REA Group benefited from greater penetration of its premium (‘listing depth’) services and increased EBITDA by 29%.

Book Publishing (mostly HarperCollins) increased adjusted EBITDA by 77% thanks to the success of the Divergent series of books by Veronica Roth, as well as a ‘higher contribution … from e-books and ongoing operational efficiencies’.

Foxtel and Fox Sports also performed well, the former increasing EBITDA by 3% thanks largely to cost savings from the Austar acquisitions and the latter increasing EBITDA by 8%, despite reduced revenue, thanks to lower programming costs.

Losses from 'other' (including the nascent Aplify education business) increased 13%, leaving total segment EBITDA up 4% to $175m. However, overall profit before tax, before significant items and restructuring charges, fell 5%.

The beauty of these kinds of situation is that as time goes on, the successes get bigger and the problems get smaller. We expect that process to continue. The stock is down 5% since News Corp: Interim Result 2014 (Speculative Buy – $19.23). SPECULATIVE BUY.