The wide-moat firm has reinvigorated its television studios in the U.S. and abroad.
posted a mixed fiscal second quarter, as EBITDA came in above our projection but revenue missed slightly due to foreign exchange headwinds and lower international ad revenue at Star due to the demonetization policy in India. While the film studio continues to disappoint, we are pleased with the improved television production efforts including the new series at Nat Geo and FX. As we discussed in our recent Technology Observer, The Stream Less Taken, Fox has reinvigorated its television studios in the U.S. and abroad. We are maintaining our wide moat rating and our fair value estimate of $35. Currently trading in 4-star territory, the stock may offer an attractive entry point to investors.
Neil Macker, CFA, is an equity analyst for Morningstar.
Quarterly revenue of $7.68 billion was up 4% versus a year ago but 1.5% below our estimate, as television growth (up 12%) and cable network (up 7%) was more than offset by continued decline at filmed entertainment (down 4%). Cable network revenue was driven by domestic growth of 10% with affiliate fee revenue up 7% and domestic ad revenue up 12%. Ad revenue benefited from strong MLB playoffs last fall along with improved ratings and the resultant strong ad pricing at FS1. International cable revenue grew by 2% as affiliated growth of 5% (up 12% in local currency) offset the 6% decline (down 3% in local currency) in advertising revenue. The 11% improvement at the television segment was driven in part by the historic seven-game World Series and political advertising. The film division was down 4% versus last year due to a tough comp with The Martian performing in the second fiscal last year. Despite the lower-than-expected revenue, EBITDA margin improved 250 basis points to 26.0% as all three divisions outperformed our margin projections. The 435 basis point improvement at filmed entertainment was due to much lower marketing expenses for the smaller film slate. Foreign exchange movements had a $44 million negative impact on EBITDA, and is an ongoing headwind for the company.
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