News Corp 1Q profit falls on charges from scandal

AP News
Posted: Nov 02, 2011 6:54 PM
News Corp 1Q profit falls on charges from scandal

News Corp. said its first-quarter net income dropped 5 percent due to the cost of closing a scandal-wracked tabloid and dropping its takeover bid for British Sky Broadcasting.

The media conglomerate, controlled by CEO Rupert Murdoch, is under fire for hacking phones in Britain.

Its net income for July through September fell to $738 million, or 28 cents per share, from $775 million, or 30 cents per share, a year ago.

Absent about $221 million in special charges, including $91 million in restructuring costs linked to the U.K. newspaper business, adjusted earnings came to 32 cents per share, beating the 29 cents per share that analysts expected on average, according to FactSet.

Revenue grew 7 percent to $7.96 billion, helped by higher fees for pay TV channels like Fox News and the successful movie "Rise of the Planet of the Apes." That also beat the $7.63 billion expected by analysts.

Advertising revenue at its domestic pay TV channels such as FX grew 13 percent for the quarter. That topped the 9 percent advertising growth at media rival Time Warner Inc.'s Turner networks and the 11 percent adjusted growth at Discovery Communications Inc., which operates channels such as Discovery and Animal Planet.

"It's in line with Discovery, some of the best companies in the group," said media company analyst Vasily Karasyov with Susquehanna Financial Group. "It's a good quarter, definitely."

The company said Wednesday that it remains on track for higher adjusted operating income in the fiscal year that ends next June by "low to mid-teen" percentages from the $4.98 billion it posted last year.

News Corp.'s shares rose 30 cents, or 1.8 percent, to $17.20 in after-hours trading following the release of its earnings. The shares had closed up 21 cents, or 1.3 percent, at $16.90 in the regular session.

Murdoch, the 80-year-old CEO who controls News Corp. through a family trust that owns nearly 40 percent of the voting shares, did not participate in a conference call to take questions from analysts and journalists.

Earlier Wednesday, Vanity Fair previewed an article which said Rupert Murdoch had asked his son James, the company's heir apparent, to take a leave amid the phone hacking scandal this summer, before changing his mind after a sleepless night. The story appears in Vanity Fair's December issue, which hits newsstands on Thursday.

Chief Operating Officer Chase Carey said Wednesday that the company had no plans to oust James Murdoch, who is currently the No. 3 at the company as its deputy chief operating officer.

"We have great confidence in James," Carey said. "James has done a good job and we are not contemplating any changes."

Carey said, however, that the board takes "seriously" a protest vote by a majority of voting shareholders not affiliated with the family against the re-election of Murdoch's sons James and Lachlan to the board.

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"The board continues to evolve," he said. "We're proactively looking for feedback from our shareholders."

James Murdoch, as former head of News Corp.'s European and Asian operations, has come under increasing pressure over his handling of the affair and is due to testify before British lawmakers for a second time on Nov. 10.

Analyst Thomas Eagan with Collins Stewart said investors have learned to shrug off a string of damaging headlines related to the scandal and pointed to the company's improved TV channel profit margins, especially compared to decreased TV profits at Time Warner.

Any management shake-up would benefit Carey, a Wall Street darling who helped build DirecTV into a satellite TV powerhouse, Eagan said.

Carey re-joined News Corp. as COO in 2009 and since then, he's helped the company quickly sell money-losing social networking site Myspace and institute a $5 billion share buyback plan that is more than one-third complete.

"He's already changed management's perspective at News Corp. in the short time he's been there," Eagan said. "If there's any change in the management structure, it'll likely be a positive for Chase Carey, which the Street would like."