Analysts are interested in 21st Century Fox’s results for the June quarter. But two other considerations made today’s quarterly call especially compelling.
Company watchers wanted to see what signals they could pick up about who’s really running the show now that Rupert Murdoch has passed the torch to his two sons, CEO James and co-Executive Chairman Lachlan. And they wanted to hear Fox’s guidance for the fiscal year that began last month.
Lachlan called the arrangement with James “a true 50-50 partnership…We know each other better than anyone knows us.”
Rupert, now Executive Chairman, remains on the stage: He contributed the commentary to the press release. Lachlan kicked off the quarterly call with analysts, laying out the company vision. James came in later to handle nuts-and-bolts questions.
“You should not expect any seismic shift,” in strategy, Lachlan said. He also seemed to reassure investors who fear that the company might still try to make a mega-deal — like last year’s aborted $76 billion attempt to buy Time Warner. While Fox may seek “bolt-on opportunities,” the company “will be opportunistic and disciplined, just as we have in the past.”
Former COO Chase Carey was not on the call, although Lachlan says he “continues to be highly involved in many aspects of the company.”
James picked up Carey’s former role, responding to analysts’ questions about timely matters.
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He offered that Fox doesn’t fear that its regional sports networks will be left in the cold as cable and satellite companies launch skinny bundles. “In the markets where these regional sports networks are they’re often the most popular channels,” he says. The growing interest in small bundles shows that Fox needs to “invest in content that really matters to our customers.”
He also reaffirmed Fox’s interest in Hulu. “We think it’s a great asset in our portfolio,” James says. But he adds that it’s “a little frustrating” that Fox — which co-owns Hulu with Disney and Comcast — doesn’t “believe we get the value” it would have if the company owned it outright.
CFO John Nallen provided the guidance for the 2016 fiscal year. He says the cable networks should see cash flow (or EBITDA) grow by a mid teen percentage. Affiliate fees will be up low double digits, especially in the U.S. Ad sales will rise mid to high single digits in the U.S. helped by political ads at Fox News, while international sales will be up mid teens. Expenses will grow at half the high teen rate of the last two years.
At the Fox-led TV operation, cash flow will be flat. The company expects double digit growth in retransmission consent fees, with ad sales “in line” with 2015. Although linear TV is expected to decline, sales for sports may balance that. Expenses will rise by mid single digits for sports and marketing to promote new series on the Fox network.
But Filmed Entertainment might have a tougher time with three major films — X-Men: Apocalypse, Independence Day Resurgence, and Ice Age 5 — coming out early next summer. That means Fox will have to recognize expenses for the films in the 2016 fiscal year, although the revenues will fall into the 2017 fiscal year. As a result, cash flow likely will be $200 million lower than in the year that just ended.
James Murdoch says “we have a high degree of confidence” of meeting the financial goals. To underscore that, Fox says it will repurchase $5 billion of its shares in the fiscal year.
Prior to the call Fox disclosed that net income fell to $118 million in the June quarter, from $1.09 billion in the period last year, on revenues of $6.21 billion, down 26.3%. But the year-over-year numbers were not comparable due to several changes including the sale of its pay TV operations in Germany and Italy to BSkyB.
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