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Why Is Fox (FOXA) Up 1.6% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for Fox (FOXA). Shares have added about 1.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Fox due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Fox Corp Q1 Earnings & Revenues Beat Estimates, Up Y/Y

Fox reported first-quarter fiscal 2020 adjusted earnings of 83 cents per share that beat the Zacks Consensus Estimate by 18.6% and increased 1.2% year over year.

Revenues were up 5% year over year to $2.67 billion. The figure also surpassed the consensus mark by 3.8%.

Affiliate fees (52.3% of revenues) grew 4.3% to $1.39 billion. Advertising (39% of revenues) revenues decreased 2.1% to $918 million.

Other revenues (8.7% of revenues) surged 64.5% from the year-ago quarter to $232 million, driven by higher revenues from the operations of the FOX Studios Lot for third parties.
 
Top-Line Details


Cable Network Programming (48.2% of revenues) revenues increased 1.6% year over year to $1.29 billion. While revenues from Affiliate fees were flat year over year, advertising revenues declined 3.8%.

Other revenues jumped 48.4% on a year-over-year basis, driven by higher revenues generated from pay-per-view boxing and increased sports sublicensing revenues.

Affiliate revenues benefited from contractual price increases, offset by net subscriber declines. A year-over-year decline in advertising revenues primarily reflects the impact of fewer FIFA World Cup matches and the absence of Ultimate Fighting Championship content.

Television (50.8% of revenues) revenues increased 6.2% from the year-ago quarter to $1.36 billion. While advertising revenues declined 1.5%, revenues from affiliate fees and other revenues grew 14.3% and 42.5%, respectively.

Affiliate revenues grew on increased programming fees from third-party FOX affiliates and higher average rates per subscriber for the company’s owned and operated stations. Other revenues grew primarily owing to higher digital content licensing revenues and the consolidation of Bento Box.

However, advertising was negatively impacted by fewer FIFA World Cup matches and lower political-ad revenues.

Operating Details

In first-quarter fiscal 2020, operating expenses decreased 1.5% year over year to $1.47 billion. However, as a percentage of revenues, operating expenses declined 360 basis points (bps) to 55%.

Selling, general & administrative (SG&A) expenses increased 17.7% on a year-over-year basis to $352 million. As a percentage of revenues, SG&A expenses expanded 140 bps to 13.2%.

The year-over-year growth in SG&A expenses was primarily attributed to higher costs related to FOX operating as a standalone public company.

Segment EBITDA rose 12.5% year over year to $856 million. EBITDA margin expanded 210 bps on a year-over-year basis to 32.1%.

Cable Network Programming EBITDA improved 8.1% to $684 million. EBITDA margin grew 320 bps to 53.2%.

Television EBITDA surged 46.8% to $251 million. EBITDA margin expanded 510 bps to 18.5%.

Balance Sheet

As of Sep 30, 2019, Fox had $3.34 billion in cash and cash equivalents compared with $3.23 billion as of Jun 30, 2019. Long-term debt was flat at $6.75 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted -12.5% due to these changes.

VGM Scores

Currently, Fox has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Fox has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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