News Corp 2Q beats Street despite hacking charges

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By RYAN NAKASHIMA, Associated Press

LOS ANGELES (AP) — Rupert Murdoch's News Corp. said Wednesday that net income grew by nearly two-thirds in the final quarter of 2011, despite expenses related to ongoing phone hacking investigations of its U.K. newspaper unit.

The company has settled with about 60 phone hacking victims so far, but a new wave of lawsuits is coming and three parallel police probes are underway. All of the proceedings are expected to keep News Corp.'s legal bills high in the near future.

Net income in the three-month period that ended on Dec. 31 rose to $1.06 billion, or 42 cents per share, from $642 million, or 24 cents per share in the same period a year earlier.

Excluding one-time benefits and an $87 million charge it took related to government-led probes, adjusted earnings came to 39 cents per share. That topped the 34 cents per share expected by analysts polled by FactSet. Executives said about 85 percent of $87 million charge represented legal and consulting fees. The remainder went toward out-of-court settlements.

It marked the second quarter in a row that New York-based News Corp. has booked significant expenses related to the British probes, which flared up last summer. Hacking revelations caused the company to shutter its tabloid News of the World in July. In the quarter through September, the company took a $91 million charge due to the scandal.

Asked how long the company would continue to book expenses to deal with the crisis, Chief Operating Officer Chase Carey declined to provide an estimate.

"We're cooperating with authorities. That dictates part of it," he said on a conference call with journalists and analysts. "We're not going to predict or target it. We're going to do what it takes to make things right."

Chief financial officer David Devoe also declined to provide an estimate for scandal-related charges for the remainder of the fiscal year through this June.

Excluding scandal-related charges, the company said it expects annual adjusted operating profits to grow in the "low to mid-teen" percentages from the $4.98 billion a year ago, which is roughly in line with analysts' expectations.

Thanks to growth at pay TV channels like Fox News and FX and better results from its movie studio, revenue in the quarter rose 2 percent to $8.98 billion from $8.76 billion a year ago. The figure is slightly higher than the $8.94 billion expected by analysts.

Closing the scandal-wracked tabloid will diminish British newspaper revenue by $150 million this year, while its advertising flyer business is expected to fall $100 million and its Australian newspapers are expected to shrink $100 million, Carey said. The company has put new executives in place to help stabilize some of those businesses.

Even amid the problems, analysts believe the company has too much cash on its balance sheet at $9.4 billion by the end of December, compared to about $15.5 billion in long-term debt. Devoe said the company was committed to spending another $2.3 billion in share buybacks through June, on top of the $2.7 billion it has spent since last July. Carey said the company would consider another buyback plan or even higher dividends after that.

The current buybacks, executed daily according to securities filings, have helped prop up News Corp.'s stock since the scandal broke.

News Corp.'s stock, which fell more than 1 percent in after-hours trade, gained 3 cents to $19.65 after Carey opened the door to further share buybacks.

While analysts were disappointed the company did not raise its earnings guidance above expectations, the market appeared to be relieved that the company is prepared to draw down its cash balance and return the money to investors.

"The less cash they have, the less chance they have to buy something that will disappoint people," said Susquehanna Financial analyst Vasily Karasyov.

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