Rupert Murdoch mumbled a few words about how things seem to be changing for the better and up surges the News Corp share price, as investors forgot what a rotten track record Mr Murdoch has in forecasting.
News Corp shares jumped by around 9.5% in trading yesterday or $1.27 a share and ended at $14.56.
That was despite one of the worst quarterly profit results in years.
The recession may have crunched News Corp’s third quarter profits, especially from its TV and newspaper businesses where profits have collapsed, but Rupert had the smile on, it seems.
Operating profits fell 47% after the 42% fall in the second quarter, but the grim ‘I’ve never seen it as bad’ was replaced with the sunnier:
"There are emerging signs in some of our businesses that the days of precipitous decline are done and that revenues are beginning to look healthier.
He maintained his February forecast for a 30% fall in operating earnings for 2008-09.
And the market lapped it up, forgetting that he forecast $US20 a barrel oil when the US, Australia and the UK invaded Iraq in March 2003; that the Wall Street Journal and the Dow Jones Company was a great buy and worth the $US5.8 billion news paid for it at the height of the market boom in late 2007, only to write off half that cost earlier this year in the December quarter results.
And never mind that Mr Murdoch completely missed the slump in earnings in the December quarter: he had been forecasting a drop in the ‘high mid teens’. It turned out to be 42%.
But the market and many investors want to hear the upside, instead of the downside.
With News Corp the downside is that it $US755 million in the March quarter, against $US1.4 billion.
That’s the lowest quarterly result for more than three years.
The company’s revenues surprised by falling $US1.3 billion, or 15%, on lower ad sales, film income and the disposal of some assets, such as eight TV stations.
The slump echoes that reported by rival US TV and film groups, NBC Universal, where earnings fell 45% on a 2% rise in revenues, and Disney, where revenues fell 8% and earnings dropped 44% (or half a billion US dollars).
Short of the dark days of 1980-81, this would have to be one of Rupert Murdoch’s worst quarters for earnings; profits from his much vaunted Fox free to air TV business in the US slumped to just $US4 million in the March quarter, down a huge $US415 million from the same quarter of 2007-2008. This was after a similar collapse in the December quarter where the fell $US227 million to just $US18 million.
To make his retained guidance that guidance for a 30% fall in profits in the June 30 year, (which would put operating income around $US3.76 billion), News’ earnings would have to jump 80% in this quarter in the June three months to over $US1.2 billion.
So far, there doesn’t seem to be any sign of a surge in advertising coming out of the US.
Mr Murdoch said that News Corp shed 3000 people across its businesses to counter the slowdown in revenues, primarily by merging activities at its newspapers and TV stations. Again he didn’t reveal the size of the job cuts in Australia, especially at News Ltd papers.
He won’t get another profit boost from those cost cuts, and unless there is a return to strong advertising by US car companies (Unlikely given that Chrysler is bankrupt and GM heading that way), News Corp will have to look elsewhere for its boost. Australia and the UK won’t provide it either.
The free to air TV businesses in the US and the company’s powerful and feared newspapers earned the sum total of $US11 million in the quarter, compared with some $US635 million in the March quarter of 2008.
As dramatic as the slump in US TV revenues were, the results disclosed an even bigger collapse in newspaper profits from the businesses in the US, UK and Australia (Source ,newscorp.com).
Papers like the New York Post, the Wall Street Journal, the Times, The Sun, The Australian and The Herald Sun could only manage to earn just $US7 million in the quarter.
That was down a huge $US209 million from the March quarter of the 2008 financial year.
While the various papers earned lower profits in local currencies (the Australian dollar and UK pound) the stronger US dollar all but wiped them out. If it hadn’t been for the acquisition of the Dow Jones business (for which Murdoch paid $US2.8 billion too much), newspapers would have turned in a loss on consolidation in US dollars.
Seeing the papers earned $US179 million in the second quarter, the collapse in the third quarter is nothing short of astonishing.
Figures published in London Tuesday for the June 30,2 008 results for The Times and other papers showed losses or lower profits, now there seems to be a tide of red ink sweeping his once core businesses.
News Corp said operating income fell 42% in Australia (down 18% in the second quarter) as ad revenues dropped 16% (4% in the second quarter). In the UK ad revenues fell 21%.
Marketing and other costs rose, circulation revenues only rose because of higher cover prices.
News made no remark on the 20.55% plunge in sales of the once core New York Post in the March quarter.
In fact, one reading of the newspaper results would indicate that the lower, unquantified profits from the Wall Street Journal and the Dow Jones Company covered much of the losses elsewhere in newspapers.
No wonder Murdoch has been telling anyone who listens that this is the worst he and the company have seen business conditions.
If it wasn’t for the strength of his cable TV networks in the US at the moment, Murdoch and News Corp would be looking at a re-run of 1980-81 when the company was nearly put under by banks nervous as weak earnings and unchecked expansion.
But now he’s back being upbeat, a believer it seems in the ‘green shoots’ theory of economic recovery.
