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Scandal Isn’t Slowing Murdoch’s News Corp

The tainted media giant has one glaring weak spot amid many strengths


Shares of News Corp (NYSE:NWS), the media conglomerate controlled by Rupert Murdoch, have gained nearly 10% since the start of the year, outperforming all its rivals with the exception of Walt Disney (NYSE:DIS). This is a remarkable testament to Murdoch’s ability to withstand the worst maelstrom of negative publicity in his decades-long career.

News Corp., which is based in New York, just reported a very strong quarter. Net income of $1.06 billion, or 42, cents per share, versus $642 million, or 24 cents, a year ago. Revenue rose 2% to $8.98 billion, fueled by gains in its Cable Network Programming, Television and Filmed Entertainment businesses. When one-time items are excluded, profit was 39 cents, 5 cents above Wall Street consensus forecasts. With the exception of the scandal-plagued Publishing unit, all News Corp businesses posted solid gains.

The success of Alvin and the Chipmunks: Chipwrecked helped the Filmed Entertainment business more than double to $393 million. News Corp has several films in the pipeline that look promising, such as The Three Stooges. The company also will benefit from the re-release of the Star Wars films in 3-D.

Operating income at the Cable Network Programming surged 20% to $882 million in the last quarter because the lockout-shortened NBA season meant the unit shelled out less money for basketball games broadcast on its regional sports networks. The Television business saw its profit rise 25% to $189 million. Both divisions should benefit from increased political advertising as the presidential election begins to heat up.

Publishing, though, is what the media focused on because of the U.K. phone hacking scandal, which has so far cost News Corp $104 million, including $84 million in the quarter. The impact of the scandal on the company’s reputation is harder to quantify. It was forced last year to drop its bid to assume control over the satellite broadcaster BSkyB.

Rupert Murdoch may also have difficulty transferring power to his son James because of accusations that the younger Murdoch misled the U.K. Parliament. The Murdochs may face increasing pressure from investors to shed the publishing business because of its poor performance.

Operating income there fell 43% to $218 million because of the News of the World scandal and lower advertising sales at the company’s Australian papers. The U.K. papers alone are expected to be down more than $150 million this year. Dow Jones is a bright spot, posting-year-over-year gains. The company, parent of The Wall Street Journal, recently named former Bloomberg executive Lex Fenwick as CEO, but it wasn’t more specific about Dow Jones’s results.

“We are committed to being a leader in news and information, and we remain confident in our ability to transition these businesses,” said Chief Operating Officer Chase Carey, during yesterday’s earnings conference call.  “Bottom line, we feel really good about the momentum to our business and believe we have a lot of upside over the next few years to our overall results.”

Many investors would rather News Corp shed its publishing business because it creates so many headaches, especially considering that its impact on the company’s bottom line is marginal at best. But given Murdoch’s affinity for newspapers, that isn’t likely to happen.

On the earnings call, Carey mentioned that once the current $5 billion program ends in June, additional stock buybacks  are something “that certainly — and probably makes sense” given the stock’s current cheap price, just under $20. But given the shares’ performance so far this year, News Corp might not want to wait that long.

Jonathan Berr doesn’t own shares of any companies mentioned here.

Article printed from InvestorPlace Media,

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