Discovery Communications Inc. (DISCA) reported mixed financial results for the third quarter of 2014. The company’s earnings exceeded our expectation whereas revenues lagged the same. Soft U.S. network revenues were primarily responsible for the top-line miss.
Quarterly net income came in at $280 million or 41 cents per share compared with $255 million or 35 cents per share in the year-ago quarter. Moreover, third-quarter adjusted earnings per share of 46 cents steered past the Zacks Consensus Estimate of 41 cents.
Quarterly total revenue of $1,568 million exhibited an improvement of 14% year over year but fell short of the Zacks Consensus Estimate of $1,592 million. The year-over-year growth came on the back of strong international sales.
Total Distribution revenues reached $748 million, up 14.9% year over year. Total Advertising revenues stood at $725 million, up 9% year over year. Other revenues were $95 million, up 6.1% year over year. Quarterly expenses (on a reported basis) were $1,057 million against $887 million in the prior-year quarter.
Quarterly adjusted operating income before depreciation and amortization (OIBDA) was $634 million, up 8% year over year. During the third quarter of 2014, Discovery Communications bought back $298 million worth of common stock.
In the third quarter, Discovery generated $420 million of cash from operations, down 8.7% year over year. Free cash flow in the quarter was $393 million as against $438 million in the prior-year period.
At the end of the third quarter of 2014, Discovery had $376 million of cash and $7,148 million of debt outstanding (including current portion) as against $408 million of cash and $6,499 million of debt outstanding at the end of 2013. The debt-to-capitalization ratio, at the end of the reported quarter was 0.51 as against 0.50 at the end of the preceding quarter.
Segmental Information
U.S. Networks Segment
Total revenue stood at $724 million, down 1% year over year. Within this, Distribution revenues were $318 million, down 3% year over year. Advertising revenues were $388 million, up 1% from the prior-year quarter. Other revenues were $18 million, down 14% year over year. Adjusted OIBDA was $425 million, flat year over year. Adjusted OIBDA margin was 59%, as opposed to 58% a year ago
International Networks Segment
Total revenue came in at $818 million, up 32% year over year. Contained in this, Distribution revenues were $430 million, up 34% year over year. Advertising revenues stood at $337 million, up 20% year over year. Other revenues stood at $51 million, highlighting a more than three-fold rise year over year. Adjusted OIBDA was $278 million, up 25% year over year. Adjusted OIBDA margin was 34% as against 36% in the prior-year quarter.
Education Segment
Total revenue was $27 million, up 23% year over year. Adjusted OIBDA was $3 million, up 50% from the year-ago quarter. Adjusted OIBDA margin was 11% as against 9% in the prior-year quarter.
2014 Revenue Outlook Lowered
Discovery Communications expects total revenue for 2014 in the range of $6.30 to $6.35 billion (old guidance: $6.45 billion to $6.625 billion). The Zacks Consensus Estimate for 2014 hints at revenues of $6.43 billion. Adjusted OIBDA is projected to range from $2.50 billion to $2.55 billion (old guidance: $2.6 billion to $2.65 billion). Net income (on an adjusted basis) is anticipated in the range of $1.275 billion to $1.305 billion (old guidance: $1.34 billion to $1.4 billion).
Zacks Rank
Discovery Communications currently has a Zacks Rank #3 (Hold). Better-ranked stocks include The Walt Disney Company (DIS), Sirius XM Holdings (SIRI) and DISH Network (DISH). All the three stocks carry a Zacks Rank #2 (Buy).
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