Discovery Communications’ Q1 earnings report probably won’t change the growing concerns on Wall Street about the fate of cable networks. The company fell short of the Street’s expectations, partly due to overseas results which were affected by weakening currencies vs. the U.S. dollar.
The company today reported $215 million in net income, down 18.3% vs the period last year, on revenues of $1.61 billion, up 3.3%. Analysts had been looking for $1.63 billion on the top line.
Adjusted earnings, at 41 cents a share, also were shy of the 45 cents investors expected.
“Improved ratings across many of Discovery’s key distinctive programs and brands, coupled with strong global distribution growth, led to solid organic growth in the first quarter,” CEO David Zaslav says. “Beyond our linear business, we continue to focus on new strategic partnerships and investments to help drive our multiplatform growth strategy and ensure that we reach our global superfans on every screen.”
Investors have been looking for encouraging news from cable networks, including Discovery, after several pay TV distributors reported surprisingly large subscriber losses in Q1, while Time Warner and others warned that ad sales might weaken over the next several months.
Discovery’s U.S. Networks benefited in Q1 from a 5% growth in distribution fees, with ad sales up 1%. That resulted in a 3% improvement in revenues, to $829 million, with the company’s preferred profit yardstick — adjusted operating income before depreciation and amortization — up 6% to $501 million.
Distribution was up due to higher rates, partially offset by “a slight decline in subscribers.” Ad sales had a similar story: Rates increased but were offset by “lower delivery” along with the impact of an investment in a digital media venture, Group Nine.
The International Networks saw revenues increase 5% to $747 million with adjusted OIBDA up 7% to $194 million. Had currencies remained stable, then revenues would have been up 8%, the company says.
As reported, distribution fees were up 9% while ad sales fell 1% — but Discovery says that, if you take the currency changes out of the equation, distribution fees would have been up 10%, and ad sales would have been up 3%.
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