Media conglomerate News Corp. cut its forecast for annual earnings Wednesday, saying underperformance at several businesses including its Fox broadcast network would offset a gain in earnings in the most recent quarter.
The company said operating income for the current fiscal year, which runs through June, would now grow by "mid- to high single digit" percentages, down from the "high single- to low double-digit" percentages it predicted in November.
Fox's once-hot singing competition show, "The X Factor," failed to generate large audiences, while post-season NFL football also saw an audience decline from a year earlier. Sky Italia, the company's satellite TV business in Italy, lost subscribers in a weak economy.
Shares fell $1.22, or 4.3 percent, to $27 in after-hours trading, reversing a bump in the extended session after the company reported an increase in earnings for the last three months of 2012. The stock lost 13 cents to close the regular session at $28.22.
"Clearly, 'X Factor' was a disappointment for us," Chief Operating Officer Chase Carey told analysts on a conference call. "Maybe early in the year, we were a little too optimistic."
The company, which is controlled by its lead shareholder and CEO Rupert Murdoch, earned $2.38 billion, or $1.01 per share, in the fiscal second quarter. That's up from $1.06 billion, or 42 cents per share, a year earlier.
Earnings got a one-time, $1.4 billion boost due to the company taking a bigger stake in pay TV networks Fox Sports Australia and Fox Star Sports Asia. It also posted a $131 million gain from participating in a stock buyback program at British Sky Broadcasting, in which News Corp. has a stake of about 40 percent. The one-time gains were offset by restructuring charges of $65 million related to newspapers abroad.
Excluding one-time items, adjusted earnings came to 44 cents per share, beating the 43 cents per share expected by analysts, according to FactSet.
Revenue was $9.43 billion, up 5 percent from $8.98 billion. The company says its pay TV network business helped grow revenue.
Analysts forecast revenue of $9.26 billion.
Alan Gould, an analyst with Evercore Partners, said the downward outlook revision came as a surprise, since he was predicting 11 percent operating income growth for the year.
While audience ratings problems at Fox and troubles at Sky Italia were expected, Gould said he thought the difference would be made up by strong pay TV networks like Fox News Channel and FX as well as new fees from TV signal distributors that carry its TV stations.
"Obviously, lowering the operating income guidance was a surprise," he said. "They are not counting on a turnaround now."
Carey said that to cope with the subscriber loss in Italy, the company would aim to cut $200 million in programming costs there.
News Corp. is planning to split into two companies this year — one for publishing and the other for the TV and movie businesses.
That would help the larger surviving entity made up of the movie studio and TV assets show faster profit growth. That entity will be rebranded Fox Group, while the newspaper and publishing company will keep the name News Corp.
Carey addressed multiple reports recently that News Corp. is preparing to launch a national sports network in the U.S. to compete with The Walt Disney Co.'s ESPN. Carey called it "the world's worst kept secret" and said the company had amassed a broad array of sports rights that include NASCAR auto racing, as well as baseball, college football and basketball, soccer and mixed martial arts, but he didn't provide launch details.
"If we were launching something next month, we'd have to announce it. We're not and so we'll continue to build up pent-up demand," he said.
Business Writer Barbara Ortutay in New York contributed to this report.