Fox (FOXA) Up 20.9% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Fox (FOXA). Shares have added about 20.9% 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 drivers.

Fox Corp Q3 Earnings Beat Estimates, Revenues Up Y/Y

Fox Corporation reported third-quarter fiscal 2020 adjusted earnings of 93 cents per share that beat the Zacks Consensus Estimate by 29.2% and increased 22.4% year over year.

Revenues were up 25% year over year to $3.44 billion. The figure also surpassed the consensus mark by 2.5%.

Affiliate fees (45.3% of revenues) grew 9.8% to $1.55 billion. Advertising (45.6% of revenues) revenues increased 44.3% to $1.57 billion.

Other revenues (9% of revenues) rose 27.5% from the year-ago quarter to $11 million, driven by higher revenues from the operations of FOX Studios Lot for third parties.
 
Notably, Fox became a standalone, publicly-traded company on Mar 21, 2019, following the merger of Disney and Twenty-First Century Fox, Inc.

The standalone Fox’s portfolio comprises Twenty-First Century Fox’s news, sports and broadcast businesses. These include FOX News, FOX Business, FOX Broadcasting Company (the FOX Network), FOX Sports, FOX Television Stations Group, sports cable networks like FS1, FS2, FOX Deportes and Big Ten Network, and certain other assets.

Top-Line Details

Cable Network Programming (42.6% of revenues) revenues increased 6.1% year over year to $1.46 billion. While revenues from Affiliate fees grew 3.9% year over year, advertising revenues grew 10.1% driven by stronger ratings and higher digital advertising revenues at FOX News Media.

Affiliate revenues benefited from contractual price increases, offset by net subscriber declines.

Other revenues improved 12.9% on a year-over-year basis, driven by higher revenues generated from pay-per-view boxing and increased sports sublicensing revenues.

Television (56% of revenues) revenues rose 40.6% from the year-ago quarter to $1.92 billion. Advertising, affiliate fees and other revenues grew 55.9%, 22.3% and 0.9%, respectively.

Affiliate revenues improved on increased programming fees from third-party FOX affiliates and higher average rates per subscriber for the company’s owned and operated stations.

Advertising revenues benefited from the broadcast of Super Bowl LIV, partially offset by the impact of one less NFL Divisional playoff game compared to the prior-year quarter. Also contributing to the increase in advertising revenues was higher cyclical political revenues at FOX Television Stations, partially offset by a decline in the local advertising market as a result of the coronavirus outbreak.

Operating Details

In third-quarter fiscal 2020, operating expenses increased 24.2% year over year to $2.06 billion. As a percentage of revenues, operating expenses contracted 40 basis points (bps) to 59.9%.

Selling, general & administrative (SG&A) expenses surged 38.1% on a year-over-year basis to $464 million. As a percentage of revenues, SG&A expenses expanded 130 bps to 13.5%.

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

Segment EBITDA increased 20.1% year over year to $920 million. EBITDA margin contracted 110 bps on a year-over-year basis to 26.7%.

Cable Network Programming EBITDA improved 6.9% to $792 million. EBITDA margin grew 40 bps to 54%.

Television EBITDA improved 123.6% to $224 million. EBITDA margin grew 440 bps to 11.6%.

Balance Sheet

As of Mar 31, 2020, Fox had $3.19 billion in cash and cash equivalents compared with $1.99 billion as of Dec 31, 2019.

Long-term debt as of Mar 31, 2020 was $6.75 billion, unchanged from the figure reported on Dec 31, 2019.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -15.67% due to these changes.

VGM Scores

Currently, Fox has a great Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

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

Outlook

Estimates have been broadly trending downward 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.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Fox Corporation (FOXA) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research