A leading US media analyst has cut his 2009 earnings forecasts for Rupert Murdoch’s News Corporation and now believes the world’s largest media company could see a sharper than expected drop in profits in the year to June 30.
Analyst Doug Mitchelson of Deutsche Bank has told clients in a note last week that he now expects News Corp to earn 89 USc a share, down from the previous estimate of $1.06 a share.
That’s a cut of 16% and is under the 96c a share consensus from a poll of News analysts by Thomson Reuters.
Seeing News Corp earned $US1.81 in 2008, the Deutsche Bank analyst is forecasting a profit fall of more than 50%. And as News earned $US1.08 a share in 2007, this year’s result will be lower than that level.
News is expected to report the second quarter and first half results in early February.
For the company’s fiscal second quarter, Mitchelson cut his profit estimate to 21 USc from 29USc per share. News earned 27 USc a share in the second quarter of 2008. It earned 20 USc a share in the first quarter of the current year.
That’s a much bigger fall than the one estimated by Mr Murdoch during a teleconference last November for the first quarter results. He estimated earnings could be down in the "low to mid teens”.
News Corp said in early November that it now expects fiscal 2009 operating income to fall in low- to mid-teen percentage terms, compared to its previous forecast for growth of 4% to 6%.
"While it is tempting to suggest that the worst-case scenario is now fully reflected in our forecast, further risks remain to the extent the economy continues to weaken," Mitchelson said in a client note.
He said the downturn has hurt a wide swath of the company’s businesses, from television ads, to DVDs and theater releases, to retail book sales. (News cited TV advertising falling, especially at its local stations, with the struggling US car sector the main culprit. job ads also fell in the US, Australia and UK).
In fact the plunge in DVD sales is starting to worry Hollywood and big US media companies that have come to depend on them as their most important growth source of sales and profits.
The Financial Times reported last week that
"Hollywood has come to depend on DVDs, with many films only breaking even once they are released in the format.
But a decline that started slowly at the beginning of last year accelerated from November, with sales of new titles falling 21 per cent, according to Nielsen figures seen by the Financial Times.
“Studios are going to have to renegotiate a lot of talent deals if new movies are going to get made,” he said. "There’s nowhere else to shave the money than with the talent.”
Media groups such as Time Warner, Sony, Viacom, News Corp and NBC Universal are banking on the new Blu-ray format, which is growing in popularity, to offset the decline of the DVD.
But The Financial Times says Blu-ray represents only a tiny fraction of the US home entertainment market, generating $US750m in 2008, compared with $US20bn on DVDs.
This news will force earnings forecast to be lowered in coming months, along with the continuing slump in US and UK advertising.
