Discovery Communications: Q4 Earnings Beat, Revenues Lag

Discovery Communications Inc. (DISCA) reported mixed financial results for the fourth 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 $250 million or 38 cents per share compared with $289 million or 41 cents per share in the year-ago quarter. Moreover, fourth-quarter adjusted earnings per share of 43 cents steered past the Zacks Consensus Estimate of 41 cents.

On the other hand, quarterly total revenue of $1,676 million exhibited an improvement of 9% year over year but fell short of the Zacks Consensus Estimate of $1,715 million. The year-over-year growth came on the back of strong international sales.

Total Distribution revenue was $745 million, up 16.4% year over year. Total Advertising revenue was $831 million, up 1.7%. Other revenues grossed $100 million, up 25% year over year. Quarterly expenses (on a reported basis) totaled $1,200 million, 18.2% higher than the year-earlier quarter.

Quarterly adjusted operating income before depreciation and amortization (OIBDA) was $638 million, down 4% year over year. During the fourth quarter of 2014, Discovery Communications bought back $274 million worth of common stock.

At the end of the fourth quarter, Discovery generated $1,308 million of cash from operations against $1,285 million in the prior-year period. Free cash flow in the same period was $1,198 million versus $1,170 million a year ago.

At the end of 2014, Discovery had $367 million of cash and $6,046 million of debt outstanding (including current portion) against $408 million of cash and $6,482 million of debt outstanding at the end of 2013. The debt-to-capitalization ratio, at the end of the reported quarter was 0.52 against 0.51 at the end of the preceding quarter.

Segmental Information

U.S. Networks Segment

Total revenue came in at $745 million, up 1% year over year. Within this, Distribution revenues were $333 million, up 8% year over year. Advertising revenues were $398 million, down 3% from the prior-year quarter. Other revenues were $14 million, down 30% year over year. Adjusted OIBDA was $405 million, down 7% over year. Adjusted OIBDA margin was 54.4% versus 58.8% a year ago.

International Networks Segment

Total revenue came in at $884 million, up 17% year over year. Contained in this, Distribution revenues were $412 million, up 24% year over year. Advertising revenues were $433 million, up 7%. Other revenues came in at $39 million, up 117% year over year. Adjusted OIBDA was $329 million, up 11% year over year. Adjusted OIBDA margin was 37.2% as against 39.2% in the prior-year quarter.

Education Segment

Total revenue at this segment reached $43 million, down 9% year over year.

Zacks Rank

Discovery Communications currently has a Zacks Rank #4 (Sell). Better-ranked stocks include The Walt Disney Company (DIS), Sinclair Broadcast Group, Inc. (SBGI) and Salem Communications Corp. (SALM). All the three stocks carry a Zacks Rank #2 (Buy).