Discovery Communications scores a healthy Q1


Discovery ChannelThe cable networks giant led by CEO David Zaslav posted revenue of nearly $1.2 billion, up 7% or $71 million compared with Q1 2012. Earnings rose from $221 million to $231 million. Analysts had been expecting $239 million.

The increase was led by 17% growth at International Networks and 1% growth at US Networks which included the impact of additional licensing revenues in the prior year.

Among the items affecting the latest profit were a $92 million gain from the consolidation of results for Discovery Japan and $46 million of improved equity earnings, but also higher equity-based compensation expenses and a $59 million loss from “hedging activities primarily associated with the acquisition of the SBS Nordic operations.”

Adjusted Operating Income Before Depreciation and Amortization (OIBDA) declined by 2% to $498 million, as an 8% increase at International Networks was offset by a decrease of 5% at U.S. Networks due to the additional licensing revenue in last year’s quarter.  Excluding the impact of licensing agreements and foreign currency, total company revenues increased 12% and Adjusted OIBDA increased 8%.

Q1 net income available to stockholders of $231 million ($0.63 per diluted share) increased $10 million compared to $221 million ($0.57 per diluted share) for the first quarter a year ago, primarily due to the strong underlying operating performance in the current year’s quarter as well as a $92 million gain associated with the consolidation of Discovery Japan and $46 million of improved equity earnings, partially offset by higher taxes, increased mark-to-market equity-based compensation and $59 million of losses from hedging activities primarily associated with the acquisition of the SBS Nordic operations.

Said Zaslav: “The significant operating momentum Discovery generated throughout 2012 continued unabated in the first quarter with more and more audiences around the globe viewing our unique programming.  The sustained investment we have made in developing compelling content, along with the quality of our brands, translated into further market share gains, with record first quarter viewership at our domestic networks and 16% audience growth across our international portfolio. As we continue to invest in the organic growth opportunities our diverse distribution platform provides, we have also completed several strategic acquisitions which we expect will further broaden our asset mix around the world and bolster our long-term growth prospects.  2013 is off to a great start and with continued focus on strong operating execution, we anticipate building on the financial success we have achieved over the last several years while delivering significant shareholder value.”

US Networks’ revenues increased to $686 million, as ad growth was mostly offset by a decline in distribution revenue. Advertising revenue increased 8% primarily as a result of higher delivery and increased pricing.

Distribution revenue decreased 9% as higher rates and subscriber growth primarily from networks carried on the digital tier were more than offset by additional revenues from licensing agreements in the first quarter of 2012. Excluding the $45 million impact from licensing revenues, distribution revenues grew 6% and total revenues grew 8% compared with the first quarter a year ago.

Adjusted OIBDA decreased 5% to $377 million, primarily reflecting the impact of licensing agreements in the prior year as well as higher operating expenses, mainly due to increased content amortization and personnel costs.