Earnings Scorecard: News Corp.

News Corporation (NWSA), a diversified media conglomerate, recently posted third-quarter 2011 results.

Street analysts had nearly a week to ponder on the news. In the subsequent paragraphs, we cover the recent earnings announcement, analysts’ estimate revisions as well as the Zacks Rank and long-term recommendation for the stock.

Earnings Report Review

Despite witnessing robust performances across its Television and Cable Networks segments, News Corporation’s third-quarter 2011 top- and bottom-line results missed the Zacks’ expectations, as the spark of chartbuster movie Avatar that benefited the prior-year results faded away.

Rupert Murdoch controlled News Corporation’s quarterly earnings of 26 cents a share fell short of the Zacks Consensus Estimate by a penny, and dropped 10.3% from 29 cents earned in the year-ago quarter.

Including charges related to litigation settlement at its Publishing segment, News Corporation informed that quarterly earnings came in at 24 cents, down 25% from 32 cents delivered in the year-ago quarter.

News Corporation, which faces stiff competition from Time Warner Inc. (TWX), reported that total revenue tumbled 6% year over year to $8,256 million, reflecting weakness across Filmed Entertainment (down 35.8%), Direct Broadcast Satellite Television (down 3.2%) and Publishing (down 1.5%), offset by Cable Network Programming (up 13.5%) and Television (up 23.1%). The Other segment’s revenue plunged 33.6%. Total revenue was below the Zacks Consensus Estimate of $8,511 million.

(Read our full coverage on this earnings report: News Corp. Misses Both Edges)

Agreement of Estimate Revisions

Clearly, a positive sentiment is palpable among analysts, following the earnings release. In the last 7 days, 5 out of the 17 analysts covering the stock increased their estimates while 1 lowered the estimate for fourth-quarter 2011. For first-quarter 2012, 1 analyst revised its estimate in the upward direction, while one analyst chopped the estimate in the last 7 days.

For fiscal 2011 and 2012, 2 and 5 analysts, respectively have increased their estimates while 3 and 1 analyst, respectively have lowered their projection in the last 7 days.

Magnitude of Estimate Revisions

In the last 7 days, the Zacks Consensus Estimate for fiscal 2011 went down by a penny to $1.11, and for fiscal 2012, the Estimate inched up by a penny to $1.31.

For both the fourth-quarter 2011 and first-quarter 2012, the Zacks Consensus Estimate remained stable at 29 cents a share in the last 7 days.

The current Zacks Consensus for fourth-quarter 2011 is pegged from a low of 24 cents to a high of 35 cents. For fiscal 2011, the estimates range from $1.05 to $1.15.

News Corporation in Neutral Lane

Founded in 1922 and headquartered in New York, News Corporation is a diversified global media company operating under Cable Network Programming (which includes STAR Group Limited), Filmed Entertainment, Television, Direct Broadcast Satellite Television and Publishing.

News Corporation’s significant international presence has helped it to broaden its client base and product portfolio. News Corporation principally operates in the United Kingdom, Continental Europe, Australia, Asiaand Latin Americaapart from the United States. We believe that its strong international exposure will drive growth in the coming quarters.

News Corporation has also taken a leap toward an online subscription-based model for general news content. News International, a subsidiary of News Corporation, has started charging readers for online content of The Times of London and Sunday Times of London with effect from June 2010.

However, the company derives substantial revenue from advertising, which in turn, depends upon the health of the economy. During recession, the demand for advertising dropped. Newspaper companies have been grappling with the slump in print advertising demand, with advertisers migrating to the Internet driven by increasing online readership and lower ad prices online than print.

After evaluating the pros & cons, we prefer to maintain a long-term ‘Neutral’ recommendation on the stock. Moreover, News Corp. holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.

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