Why Is The Madison Square Garden Company (MSG) Down 16.9% Since Last Earnings Report?

It has been about a month since the last earnings report for The Madison Square (NYSE:SQ) Garden Company (MSG). Shares have lost about 16.9% in that time frame, underperforming the S&P 500.

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

Madison Square Garden's Q2 Earnings Top Estimates

The Madison Square Garden reported mixed second-quarter fiscal 2020 results, with earnings beating the Zacks Consensus Estimate and revenues missing the same.

The company reported adjusted earnings of $3.93 per share, which beat the Zacks Consensus Estimate of $2.41 by 63.1%. Also, the figure increased from the year-ago quarter’s earnings of $3.42 by 14.9%.

Revenues during the quarter totaled $628.8 million, which missed the consensus mark of $640 million by 1.7%. Also, the top line dropped 0.5% year over year. The decline was primarily caused by dismal performance in the Entertainment segment.

Segmental Performance

Revenues in the Entertainment segment totaled $312.7 million, down 1.2% year over year. The downside was caused by fall in event-related revenues at the company's venues. The winding down of Obscura Digital’s third-party business and the expiration of the booking agreement with the Wang Theatre, impacted the segment’s revenues. However, the declines were partially offset by higher event-related revenues from other events — Tao Group Hospitality and the Christmas Spectacular Starring the Radio City Rockettes production.

The segment’s adjusted operating income amounted to $103.6 million compared with operating income of $101 million in the prior-year quarter. The metric improved primarily owing to decline in direct operating as well as selling, general and administrative expenses. The decline in operating expenses were due to lower concert-related expenses and lower Obscura Digital costs, partially offset by higher event-related expenses from other live events along with increased employee compensation and related benefits.

Revenues in the Sports segment inched up 0.2% year over year to $316.5 million, courtesy of growth in revenues from league distributions and local media rights fees from MSG Networks Inc. However, the gain was partially overshadowed by a decrease in sponsorship and signage revenue.

The segment’s adjusted operating income amounted to $55.3 million compared with operating income of $48.6 million in the prior-year quarter. The upside can be primarily attributed to decline in direct operating expenses, owing to fall in net provisions for certain team personnel transactions. This was partially offset by higher team compensation, revenue sharing and luxury tax expenses as well as other team operating expenses.

Corporate and Other

For second-quarter fiscal 2020, adjusted operating loss for Corporate and Other’s was reported at $31.9 million compared with $19.2 million reported in the year-ago quarter. The loss was primarily caused by higher expenses related to the MSG Sphere initiative, which includes — personnel, content development and technology costs as well as expenses related to the proposed spin-off the Company's Entertainment business. This was partially offset by a fall in employee compensation and related benefits in Corporate.

Operating Income

In the quarter under review, Madison Square Garden reported adjusted operating income of $126.9 million compared with operating income of $130.4 million in the year-ago quarter.

Balance Sheet

Cash and cash equivalents totaled $1,000.1 million as of Dec 31, 2019 compared with $1,086.4 million as of Jun 30, 2019. The company ended the fiscal second quarter with long-term debt of nearly $31.2 million compared with $48.6 million at the end of Jun 30, 2019.

Other Development

The company has made significant progress on its state-of-the-art entertainment venue — MSG Sphere at The Venetian. Relative to the company's current cost estimate, actual construction costs for MSG Sphere at The Venetian incurred through December 31, 2019 were approximately $248 million. The company expects to open MSG Sphere at The Venetian by 2021.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

VGM Scores

Currently, The Madison Square Garden Company has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 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 this revision indicates a downward shift. Notably, The Madison Square Garden Company has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.