24.92 +0.14: The Cultural Learnings of America made benefit glorious second quarter profits for News Corp, a suggested holding in the Briefing.com Active Portfolio.
The unequivocally anti-PC, uproariously funny mocumentary film Borat: The Cultural Learnings of America for Make Benefit Glorious Nation of Kazakhstan cost $18 mln to make. It took in $248 mln in box office receipts worldwide. The theatrical successes of Borat and Oscar-contender Little Miss Sunshine, coupled with DVD sales of The Devil Wears Prada culminated in a 57% increase in News Corp.'s Film Entertainment division's operating income. The country of Kazakhstan may come looking for its take! The film division's performance offset weakness in other areas.
Net income declined to $822 mln or 26 cents per share, compared to $694 mln or 21 cents per share reported in the second quarter a year ago. Revenues grew $7.84 mln. The results reflect higher consolidated operating income and higher equity earnings of affiliates offset by an increased tax provision. The disappointment came from the Television unit due to poor fall ratings at FOX and increased programming costs. This trend will be temporary with the arrival of blockbuster hits 24 and American Idol.
Operating income grew 24% to $1.1 bln - the highest growth rate of any large cap media company. Growth was driven again by record Film unit results and an improved performance at the Cable Network Programming, Newspapers and Direct Broadcast Satellite segments. SkyItalia contributed $41 mln in operating income on net subscriber additions of 435k over the past twelve months to 4 mln.
News Corp's double digit revenue and operating income underscores why we think it remains one of the best large cap media stocks. In addition, MySpace, which Murdoch calls the "big star" of the company, started to contribute to the growth of the company. Revenues in the unit that houses MySpace and its other Internet properties jumped to $518 mln or 41% in the quarter. MySpace will be a key profit driver for News Corp in the years ahead.
Since its introduction into the Briefing.com Active Portfolio back in November of 2005 at multi-year lows, the stock has gained nearly 58%. Notwithstanding recent gains, we remain buyers, feeling NWS deserves to trade at a premium to the market multiple given its 23% earnings growth vs. 9% for the S&P 500. Shares trade at 22.9x and 18.7x FY07 and FY08 earnings, respectively.
--Kimberly DuBord, Briefing.com
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