Morningstar | Fox Posted Strong Quarter to Start Fiscal 2019; New Fox Buoyed by Strong Results in Sports and News
Fox reported a strong start to fiscal 2019 as revenue was in line with the Street projection and EBITDA came above the consensus projections. While the results were positive, we note that the New Fox Co represents a minority piece of this quarter’s revenue and earnings, but the growth at the broadcast network and Fox News is a positive sign for the successor firm. We are maintaining our wide moat rating and our $46 fair value estimate. As a reminder, our fair value estimate is based on the Disney deal and the value of New Fox Co.Quarterly revenue was up 2% versus a year ago to $7.2 billion as growth in the cable and TV segments overcame the decline at the film studio. The cable segment was up 4%, driven by 9% domestic affiliate fee growth, as Fox continues to drive fee growth at its core brands while expanding the subscriber base of its newer channels. Domestic advertising revenue improved by 7% due to higher pricing at Fox News as the firm likely took advantage of the highly charged midterm elections. International cable revenue fell 4% as the adverse effect of a strong dollar more than offset the continued growth in affiliate fees and ad revenue. EBITDA margin for the cable segment fell by 65 basis points to 35.4% as the revenue growth was more than offset by increased sports rights costs with the impact of a strong dollar on the international side.
Revenue for the studio business was down 7% as growth in SVOD revenue from the TV side was more than offset by a smaller theatrical slate. EBITDA margin for the studio segment increased by 160 basis points to 14.6% due to larger contribution from the higher margin SVOD revenue. The 20% year-over-year growth in broadcast television revenue was largely due to 19% growth in retrans revenue and 22% increase in ad revenue, driven by the World Cup and more NFL games in the quarter. As a result, overall EBITDA increased to 5% to $1,873 million and EBITDA margin improved by 50 basis points to 26.1%.
Twenty-First Century Fox is a media and entertainment company with operations in the following segments: Cable Network Programming, which consists of the production and licensing of programming distributed primarily through cable television systems and others; Television, which consists of the broadcasting of network programming and the operation of power broadcast television stations; Filmed Entertainment, which consists of the production and acquisition of live-action and animated motion pictures for distribution and licensing in all formats in all entertainment media worldwide, and the production and licensing of television programming worldwide; and Other, Corporate and Eliminations.
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