Discovery Beats Q1 Earnings, Lags Revs - Analyst Blog

Discovery Communications Inc. DISCA reported mixed financial results for the first quarter of 2014. While net earnings easily outpaced the Zacks Consensus Estimate, total revenue fell below the same.

Quarterly net income came in at $230 million or 66 cents per share compared with $231 million or 63 cents per share in the year-ago quarter. Moreover, first-quarter adjusted earnings per share of 75 cents steered past the Zacks Consensus Estimate of 71 cents.

Quarterly total revenue of $1,411 million was up 22.1% year over year but fell below the Zacks Consensus Estimate of $1,430 million. Total Distribution revenue was $657 million, up 12.7% year over year. Total Advertising revenue stood at $689 million, up 35.6% year over year. Other revenues were $65 million, flat year over year.

Quarterly operating expenses were $977 million against $740 million in the prior-year quarter. However, operating income was $434 million compared with $416 million in the prior-year quarter. Quarterly adjusted operating income before depreciation and amortization (OIBDA) was $525 million, up 5% year over year. During the first quarter of 2014, Discovery repurchased 3.4 million worth of shares for a total consideration of $266 million.

In the first quarter of 2014, Discovery generated $241 million of cash from operations compared with $131 million in the year-ago quarter. Free cash flow, in the reported quarter, was $213 million as against with $1,05 million in the prior-year quarter.

At the end of the first quarter of 2014, Discovery had $757 million of cash and $6,918 million of debt outstanding 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 0.53 against 0.51 at end 2013.

U.S. Networks Segment

Total revenue stood at $708 million, up 3% year over year. Within this, Distribution revenues were $319 million, up 4% year over year. Advertising revenues were $373 million, up 5% from the prior-year quarter. Other revenues were $16 million, down 27% year over year. Adjusted OIBDA was $383 million, up 2% year over year. Adjusted OIBDA margin was 54% against 55% in the prior-year quarter.

International Networks Segment

Total revenue came in at $671 million, up a whopping 51% year over year. Within this, Distribution revenues were $338 million, up 23% year over year. Advertising revenues stood at $316 million, exhibiting a substantial 108% year over year. Other revenues were $17 million, remaining in line with the year-ago quarter. Adjusted OIBDA was $221 million, up 18% year over year. Adjusted OIBDA margin was 33% as against 42% in the prior-year quarter.

Education Segment

Total revenue was $32 million, up 19% year over year. Adjusted OIBDA was $6 million, down 14% from the year-ago quarter. Adjusted OIBDA margin was 19% as against 26% in the prior-year quarter.

Financial Outlook

Discovery expects total revenue for fiscal 2014 in between $6.45 billion and $6.625 billion. Adjusted OIBDA is likely to range from $2.6–$2.725 billion. Net income is anticipated between $1.2 billion and $1.3 billion.

Other Stocks to Consider

Discovery currently has a Zacks Rank #4 (Sell). Better-ranked stocks in the media industry which warrant a look include Saga Communications Inc. SGA, LIN Media LLC LIN and Entravision Communications Corp. EVC. All three stocks have a Zacks Rank #2 (Buy).