Fox (FOXA) Down 20.7% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Fox (FOXA). Shares have lost about 20.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Fox due for a breakout? 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 Q2 Earnings Beat Estimates, Revenues Up Y/Y

Fox Corporation reported second-quarter fiscal 2020 adjusted earnings of 10 cents per share that beat the Zacks Consensus Estimate of a loss of 4 cents but declined 76.7% year over year.

Revenues were up 5.4% year over year to $3.78 billion. The figure also surpassed the consensus mark by 3.4%.

Affiliate fees (38% of revenues) grew 6.8% to $1.44 billion. Advertising (53.2% of revenues) revenues increased 1.2% to $2.01 billion.

Other revenues (8.8% of revenues) rose 32.3% from the year-ago quarter to $332 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 (38.9% of revenues) revenues increased 2.4% year over year to $1.47 billion. While revenues from Affiliate fees grew 2% year over year, advertising revenues declined 4.5%.

Other revenues improved 22.4% 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 the absence of Ultimate Fighting Championship content.

Television (60% of revenues) revenues rose 5.4% from the year-ago quarter to $2.27 billion. Advertising, affiliate fees and other revenues grew 2.4%, 17.7% and 5.6%, 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. Other revenues grew primarily owing to the consolidation of Bento Box, which was partially offset by lower digital content licensing revenues.

Advertising revenues benefited from higher sports and entertainment advertising revenues at the FOX Network.

Operating Details

In second-quarter fiscal 2020, operating expenses increased 9.7% year over year to $3.09 billion. As a percentage of revenues, operating expenses jumped 320 basis points (bps) to 81.8%.

Selling, general & administrative (SG&A) expenses surged 31% on a year-over-year basis to $431 million. As a percentage of revenues, SG&A expenses expanded 220 bps to 11.4%.

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 fell 41.3% year over year to $261 million. EBITDA margin contracted 550 bps on a year-over-year basis to 6.9%.

Cable Network Programming EBITDA improved 7.1% to $556 million. EBITDA margin grew 170 bps to 37.8%.

Television EBITDA was a loss of $214 million compared with a loss of $14 million in the year-ago quarter.

Balance Sheet

As of Dec 31, 2019, Fox had $1.99 billion in cash and cash equivalents compared with $3.34 billion as of Sep 30.

Long-term debt as of Dec 31 was $6.75 billion, unchanged from the figure reported on Sep 30.

On Nov 6, 2019, Fox announced a $2-billion stock repurchase program. As of Feb 4, 2020, the company repurchased $350 million of its Class A common stock and $150 million of its Class B common stock.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -6.3% due to these changes.

VGM Scores

Currently, Fox has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% 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 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.