News Corp profit up but hacking costs uncertain

Wed Feb 8, 2012 6:57pm EST

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(Reuters) - Rupert Murdoch's News Corp (NWSA.O) beat Wall Street profit forecasts on Wednesday on the performance of its cable and movie units but warned the cost of the high-profile phone hacking scandal remains an unpredictable issue which will hurt future profits.

News Corp has been rocked by the UK scandal since last summer and has seen several of its executives depart and arrests of some journalists in connection with the hacking of victims' voice mails.

The costs of the United Kingdom investigations were "substantially higher" than the company had originally expected, according to Chief Financial Officer David Devoe, speaking on a conference call with analysts.

"Due to the fluid nature of the investigations, inquiries hearings and judicial proceedings we are unable to reliably forecast these costs for the full year," said Devoe.

He said the company incurred $104 million in charges relating to the investigation in the first six months of its fiscal year with 85 percent of that related to lawyers and advisor fees. The remaining 15 percent related to payouts to phone hacking victims.

Though the UK newspapers, which include The Sun and The Times of London, account for less than 3 percent of operating profit the impact of the scandal has been significant for Murdoch, his family and the business.

Murdoch's youngest son James, who has long been seen as heir apparent, is now not expected by investors to be able to take over the CEO role from his father in the near future because the hacking occurred on his watch at the helm of the UK business.

His older brother Lachlan based in Australia has been speculated to be returning to the company after a six-year absence.

"Rupert has said he'd be thrilled to have Lachlan back in the company but right now there aren't any plans to announce it," said Carey.

Net income rose to $1.06 billion, or 42 cents a share, for the fiscal second quarter, compared with $642 million, or 24 cents a share a year ago.

Revenue rose 2 percent to $8.98 billion.

Adjusted net income was 39 cents, after excluding one-time accounting gains offset by charges related to its UK phone hacking scandal. Analysts on average forecast profit of 34 cents, according to a poll by Thomson Reuters I/B/E/S.

Excluding the unpredictable costs of the hacking case, News Corp forecast that its operating income for the fiscal year to June 30 will grow at a percentage rate between "low to mid teens".

CABLE ENGINE

Operating income at its cable network unit, which includes FX regional sports networks, jumped 20 percent to $882 million as the fees paid by U.S. cable and satellite distributors grew by 9 percent while international affiliate fees grew 19 percent. Advertising revenue at the domestic cable channels grew 6 percent during the period, with growth offset by the NBA lockout.

Profits at its filmed entertainment unit more than doubled to $393 million on the theatrical release of the "Alvin and the Chipmunks: Chipwrecked" movie and home entertainment performances by "Rio" and "Rise of the Planet of the Apes".

But the company's publishing unit's profits fell by 43 percent to $218 million due to lower advertising revenue at its Australian newspapers, integrated marketing services business and the closure of its UK tabloid The News of the World.

"We thought the numbers were terrific across all the divisions except publishing," said Collins Stewart analyst Thomas Eagan."

After six months of scandal and crisis management in the wake of the phone-hacking affair at its UK tabloid papers, shares of News Corp (NWSA.O) have reached new heights as investors say the so-called 'Murdoch discount' has shrunk.

That scandal which has seen the departure of key executives, as well as resignations and arrests of some journalists, has left News Corp reeling since last summer but investors have put that behind them in recent months.

Earlier this month, News Corp named former Bloomberg LP chief executive Lex Fenwick to lead its Dow Jones & Co unit, which houses its Wall Street Journal newspaper.

Murdoch hopes that Fenwick will be able to focus his expertise with financial markets services to fully exploit Dow Jones' suite of financial data products.

Dow Jones' enterprise unit includes Dow Jones Newswires, DJ FX Trade, Factiva information and Dow Jones VentureSource database.

Dow Jones and Bloomberg LP are competitors with Thomson Reuters.

(Reporting By Yinka Adegoke; Editing by Bernard Orr)

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