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November 5, 2008 11:35 pm
Rupert Murdoch has sharply cut forecasts for his media empire, predicting News Corp will suffer double-digit declines in operating income for this fiscal year, rather than the 4-6 per cent growth previously forecast.
The group behind The Times and Sun newspapers, British Sky Broadcasting and Fox blamed adverse currency swings, “a pretty grim picture” at its local US television stations and deteriorating advertising revenues at its UK and Australian newspapers.
News Corp expects a low to mid-teens percentage drop in operating profit from the $5.13bn it recorded last year. The lowered guidance from the most international of the US media companies will alarm investors in other media groups, few of which have attempted to predict their earnings beyond the current quarter.
Mr Murdoch said the cut was “a clear reflection of the current economic downturn, which we believe will persist throughout fiscal 2009 and be extremely challenging for the media sector”.
News Corp would impose “stringent” cost-cutting measures across all its businesses, he said, but would not starve them of investment. He highlighted likely cuts to headcount and plans to outsource printing at 10 of the Wall Street Journal’s 17 printing plants.
The group’s strong balance sheet, with $5.5bn of cash, would help it weather what Mr Murdoch said would be a difficult time, but he tempered recent comments about seeking acquisitions of weakened rivals.
Shares in News Corp closed down 10 per cent at $9.79 before its after-hours announcement of weaker third-quarter earnings.
Net income fell to $515m, or 20 cents per share, from $732m, or 23 cents, a year earlier, driven in large part by a writedown of News Corp’s stake in Premiere. The group had built a 25.1 per cent stake in the German pay-television group before it delivered a profit warning in October.
Sky Italia raised operating income from $48m to $165m, while gains in affiliate fees and advertising revenues lifted operating income from the cable network group that includes Fox News by 31 per cent.
Revenue growth at Fox Interactive Media, which includes the MySpace social networking site, slowed to 17 per cent, against a previous forecast of 30 per cent.
News Corp’s local television stations saw a steep fall in profits, as higher political advertising on Fox was not enough to offset a weaker advertising market.
Operating income from filmed entertainment dropped from $362m to $251m.
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