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With Disney deal looming, New Fox takes shape amid fiscal Q4 earnings beat

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With Disney deal looming, New Fox takes shape amid fiscal Q4 earnings beat

After securing U.S. approval to sell a range of assets to Walt Disney Co., 21st Century Fox Inc. executives spent much of one of their final earnings calls as a stand-alone company discussing what lies ahead.

"Steady progress" is being made on the transaction in the U.S., as Disney prepares to divest 22 regional sports networks currently owned by Fox, per U.S. Department of Justice conditions, and the focus is now on "obtaining regulatory approvals outside of the United States," Executive Co-Chairman Lachlan Murdoch said during the Aug. 8 call, adding that the parties are "on track to close our transaction in the first half of calendar 2019."

Turning his attention to the remaining New Fox assets, Murdoch pointed to longtime cable news leader FOX News Channel (US), which over the past 25 months has topped total day viewership. The network will be flanked by streaming service Fox Nation, which is set to launch around the time of the midterm elections as the first direct-to-consumer offering for FOX News, he said.

Murdoch also noted that FOX Business Network (US) scored its highest-rated year during the fiscal period closing June 30 and that the channel has beaten CNBC (US) in business day for the past 14 consecutive months.

On the sports beat, with FOX (US) adding the "Thursday Night Football" package this season, New Fox will hold 40% of NFL viewership, including "America's Game of the Week" on Sunday afternoon, which Murdoch said is poised to remain TV's top show for a 10th consecutive year.

All told, FOX Sports had its highest viewership ever in 2017 on the combined strength of FOX, FOX Sports 1 (US) and FOX Sports 2 (US).

Murdoch said the 2018 FIFA World Cup tournament not only exceeded financial expectations but "vaulted FOX Sports 1 ahead of ESPN2 (US) in total-day viewership for the calendar year-to-date" and puts the network on track to achieve its fifth straight year of growth on that measure.

While the "TNF" package is expected to drive significant audience gains and be "value-accretive" over its five-year term, CFO John Nallen said, "Early on in the cycle, we anticipate losses as we begin to fully optimize these rights from a revenue perspective."

Looking at political ad sales, there are "competitive" Senate and House races in 15 of FOX's 17 TV station markets and gubernatorial contests in 16 of 17, Murdoch said. "We're very pleased when we look at the political market," he said.

Revenue for Fox's fiscal fourth quarter ended June 30 increased 18% to $7.94 billion from $6.75 billion in the corresponding period the prior year, driven by double-digit growth across all operating segments. Higher content revenues boosted the filmed entertainment segment, while higher affiliate fees and advertising aided the cable network programming and television segments.

Net income attributable to company stockholders almost doubled to $920 million, or 49 cents per share, in the fourth fiscal quarter from $476 million, or 26 cents per share, in the year-earlier period.

On an adjusted basis, quarterly EPS from continuing operations attributable to Fox stockholders improved to 57 cents from 36 cents. The S&P Global Market Intelligence consensus EPS estimated for the just-ended quarter was 53 cents on a normalized basis and 52 cents on a GAAP basis.

Fiscal year revenue reached $30.40 billion, up 7% from $28.50 billion in fiscal 2017, supported by higher affiliate and advertising revenue at the cable network programming segment and higher streaming and theatrical revenues at the filmed entertainment unit.

Full-year attributable net income climbed to $4.46 billion, or $2.40 per share, from $2.95 billion, or $1.59 per share, in fiscal 2017. Results reflected a $1.5 billion benefit from the recently enacted U.S. tax reform legislation.

The S&P Global Market Intelligence consensus EPS estimate for fiscal 2018 was $1.94 on a normalized basis and $2.44 on a GAAP basis.