News Corp. Misses Street Expectations In First Quarter After 21 Century Fox Split

Rupert Murdoch's News Corp. reported Monday afternoon a worse-than-expected 3 percent drop in revenue in its first quarter as a standalone company, thanks largely to weakness at its Australian newspapers, Reuters reported.

In reaction to the report, News Corp. Class A shares (NASDAQ:NWSA) fell 2.4 percent to $17 in after-hours trading and Class B shares (NASDAQ:NWS) were down 2.4 percent to $17.35.

News Corp. said that net income attributable to common shareholders was $27 million, compared to a loss of $92 million in the same quarter last year. On an adjusted basis, the company earned $17 million, or 3 cents a share, on revenue of $2.07 billion, missing the consensus forecast of 5 cents on revenue of $2.18 billion.

The company attributed the decline to weakness in its Australian news operations as well as weak advertising revenues from the News and Information Services segment, which fell 12 percent for the quarter. Other factors included foreign exchange fluctuations and the sale of the Dow Jones Local Media Group, Forbes reported. Lower print volume and a decline in institutional revenues at Dow Jones drove news circulation and subscription revenues down by 6 percent.

"The revenue was clearly weaker than expected," Doug Arthur, an analyst with Evercore Research, told Reuters.

News Corp. split from its more profitable sister entertainment business 21st Century Fox Inc. (NASDAQ:FOX) in July and now includes newspapers like The Wall Street Journal, The New York Post, Times of London and The Australian, book publisher HarperCollins, Australian pay-TV and digital real estate stakes, and a fledgling education unit called Amplify.

The separation came as newspapers face unprecedented challenges because advertisers are shunning the medium in favor of splashier digital properties and readers are ditching print subscriptions.

At News Corp., newspapers plus a marketing services company represent about 70 percent of revenue and almost a vast majority of its earnings before interest, taxes, depreciation, and amortization (EBITDA).

Revenue at that division fell 10 percent to $1.5 billion on a 25 percent decline in ad revenue at its Australian newspapers - the building blocks of Murdoch's empire. EBITDA, however, increased 6 percent to $133 million because of cost-cutting.

"The weakness of the Australian newspapers was well known, but the sales decline of 22 percent was even worse than I had expected," Morningstar analyst Michael Corty told Reuters.

At Dow Jones, sales to financial institutions declined though the company is emphasizing a new product rollout called DJX that includes its Newswires and other services pitched to banks, hedge funds and retail brokers. Chief Executive Robert Thomson said on a call with analysts that DJX is in the early stages and that it is "too early to get a read on market penetration."

Investors are keen to know how News Corp. plans to spend the roughly $2.7 billion cash that was bestowed to the company when it split from Fox.

Thomson said the company is considering using the cash in a number of ways including acquisitions, buybacks, dividends and internal investment.

"We are interested in acquisitions these are going to be extensions not eccentric," he said. "The two themes that permeate our thinking is digital and global and obviously acquisitions that extend our expertise."