Rupert Murdoch's News Corp reported a steeper than expected 3 percent decline in revenue in its first quarter as a standalone company, as weakness at its Australian newspapers took its toll.
News Corp shares fell 4 percent in after-hours trading on disappointment over the $2.07 billion revenue figure, which missed a Thomson Reuters I/B/E/S forecast of $2.2 billion.
"The revenue was clearly weaker than expected," said Doug Arthur, an analyst with Evercore Research. (See graphic: link.reuters.com/suc64v)
News Corp split from its more profitable sister entertainment business 21st Century Fox Inc in July and now includes newspapers ranging from The Wall Street Journal, Times of London, and The Australian, book publisher HarperCollins, Australian pay-TV and digital real estate stakes, and a fledgling education unit Amplify.
The separation happened as newspapers face unprecedented challenges because advertisers are shunning the medium in favor of splashier digital properties and readers are ditching print subscriptions.
At News Corp, newspapers along with its marketing services company, represents about 70 percent of company's revenue and almost a vast majority of its earnings before interest, taxes, depreciation, and amortization (EBITDA).
Revenue at that division fell 10 percent to $1.5 billion on a 25 percent decline in ad revenue at its Australian newspapers - the building blocks of Murdoch's empire. EBITDA increased 6 percent to $133 million because of cost cutting.
"The weakness of the Australian newspapers was well known, but the sales decline of 22 percent was even worse than I had expected," said Morningstar analyst Michael Corty.
At Dow Jones, sales to financial institutions declined though the company is emphasizing a new product rollout called DJX, that includes its Newswires and other services pitched to banks, hedge funds and retail brokers. Chief Executive Robert Thomson said on a call with analysts that DJX is in the early stages and that it is "too early to get a read on market penetration."
Dow Jones' DJX and news competes with Thomson Reuters. It also publishes the Wall Street Journal, which reported flat advertising revenue.
News Corp is dependent in newspapers. Investors are keen to know how News Corp plans to spend the roughly $2.7 billion cash that was bestowed to the company when it split from Fox.
Thomson said the company is considering using the cash in a number of ways including acquisitions, buybacks, dividends and internal investment.
"We are interested in acquisitions these are going to be extensions not eccentric," he said.
"The two themes that permeate our thinking is digital and global and obviously acquisitions that extend our expertise."
News Corp said that net income attributable to common shareholders was $27 million, compared to a loss of $92 million in the same quarter last year.
On an adjusted basis, the company earned $17 million, or 3 cents a share, missing the consensus forecast of 5 cents.
(Reporting by Jennifer Saba in New York; Editing by Bernard Orr)