News Corp's 17 Year Share Plunge

Sydney, Nov 7, 2008 (ABN Newswire) - News Corp's share price was hammered by unhappy investors yesterday as the shares suffered their biggest one day fall in 17 years after Rupert Murdoch sprung a surprise earnings downgrade on the market in a teleconference.

The news of the about face on the outlook came as News released figures revealing a 30% drop in net income for the September quarter.

It now looks as though net income for the 2009 year will be down around 15% from last year's $US5.13 billion: in August News and Murdoch forecast a rise of up to 6%.

First-quarter earnings dropped 30% to $US515 million after lower earnings from the company's film and television divisions.

So standby for cuts across the empire, including the company's Australian papers and other investors here. Mr Murdoch yesterday warned they would come.

The shares were sold down more than 21% to end off $3.40 at $12.50. They hit a new 52 week low of $12.45 in the mad morning plunge, before recovering.

That was after Murdoch revealed that News Corp had scrapped its forecast for a slight rise in earnings and was now looking at a drop in the 'mid teens', about what rival US Network, CBS is predicting for 2009.

"The company had forecast a gain of 4 percent to 6 percent for the year ending next June and is retrenching in part because of fallout from the financial-market crisis.

General Motors Corp, a top television advertiser, cut its spending by 50% in the latest quarter, Mr Murdoch said on the conference call.

"The revised guidance is a clear reflection of the fiscal environment,'' Murdoch said:

"We expect that to continue through fiscal 2009 and be very challenging to the media sector.''

Like all media companies, News Corp will need every bit of cash it can get,

Even though the company will suffer an earning drop roughly equal to that to be endured at CBS, there is no sign of any cut in the carrying value of its intangible assets and goodwill.

CBS chopped its by more than $US14.1 billion, for the same reasons outlined by Murdoch today.

The slump in US advertising is going to really hurt next year.

Analysts expected the company to revise its forecast, but had still predicted some earnings growth. 

They were all out of touch and ignoring what was happening at the New York Times, CBS and other media businesses in the US. 

Some analysts claimed that because News had lots of cable businesses, it wasn't as exposed to the vagaries of the advertising market as other media companies. But Mr Murdoch blew that line of thinking out of the ground.

"The revised guidance is a clear reflection of the current economic downturn which we believe will persist throughout fiscal 2009 and prove extremely challenging for the media sector,'' Mr Murdoch told analysts on the conference call.

He said the downgrade was based on the soured advertising markets and the recent fall in currencies such as the Aussie dollar and the British pound, which translate into lower US dollar earnings.
Mr Murdoch told his listeners that there would be cost cuts across the company's businesses, including possible job losses at News's Australian and UK newspaper operations.

"You will see even leaner operations. I'm not prepared to say how many people - I know but I don't want the headlines - but expect across-the-board cuts.''

So will those cuts bite hard here in Australia? After yesterday's first quarter report carried a bit more detail than usual about how the Australian papers were not enjoying the best of conditions at the moment, you'd have to say yep.

News Ltd papers are doing it tough, unfortunately there were no figures in the quarterly report but this will give you a flavour.

"The Newspapers and Information Services segment reported first quarter operating income of $134 million, up $41 million from the $93 million reported in the same period a year ago, as lower depreciation expense was partially offset by lower advertising revenues from the UK and Australia.

"In addition, the inclusion of Dow Jones & Company reduced the segment operating income by $4 million in the quarter.

"The UK newspaper group reported an increase in operating income in local currency terms as compared with the first quarter a year ago, primarily as a result of the absence of accelerated depreciation on the decommissioned printing presses, which was partially offset by decreased advertising revenues.

"During the quarter, circulation revenues were in line with the first quarter of the prior year.

"The Australian newspaper group reported lower first quarter operating income in local currency terms versus the first quarter of fiscal 2008 primarily due to lower classified advertising revenues resulting from declines in the employment and auto sectors.

"Additionally, circulation revenues decreased slightly during the quarter mainly from lower sales volume."

There's a startling bit of news that we haven't heard from the News Ltd group for quite a while.

Australian circulation revenues were down "slightly'' in the quarter mainly from lower sales volumes. So circulations were down in the quarter: we can hardly wait to see the next audit figures.

Unfortunately no figures, but there's no doubt News Ltd's revenues and profits are facing the same downward pressures that Fairfax papers are, and the West Australian, which also shared some gloomy first quarter figures with us yesterday

"Normalised EBIT for The West Australian was 2.4% below the prior year. Total revenue fell 2.5% to $89.2 million. Net advertising revenue fell 2.7% to $68.3 million and circulation revenue fell 2.1% to $18.6 million," WAN told the ASX and shareholders at yesterday's AGM, one of whom was Kerry Stokes, the Seven owner and major shareholder in WAN with 22.4%, and eyeing more next year.

Stokes is down around $200 million or so on his WAN adventure and its clear earnings growth won't happen there this financial year, just as they won't at Seven where next Monday's AGM in Sydney will be told profits are down close to 50% in the first quarter.

There were some highlights: Sky Italia added over 300,000 new subscribers and lifted earnings sharply, but the wins couldn't outweigh the negatives from the slumping US economy, and particularly the slump in advertising underway as retail sales and spending fall to multi-decade lows.

Conditions are going to get worse in the US before they get better: the chances of further earnings downgrades is possible for News as it is for every listed media company in the US and in Australia and the UK.


 

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