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With Help From 'Apes,' News Corp. Posts Profit for Fiscal Q1 2002

7 Nov, 2001 By: Staff Reporter

Media conglomerate News Corp. Ltd. on Wednesday reported a lower first-quarter profit as weaker advertising business at its Fox television network and stations, as well as newspapers were hurt by a sluggish economy and the Sept. 11 terrorist attacks. This weakness more than offset a stronger performance in the company's film division, which saw a year-over-year improvement thanks to strong summer movie releases, such as Planet of the Apes.

News Corp. posted first-quarter net income of $83 million excluding extraordinary items, down 43% from $149 million last year. Including the financial effect from the adoption of a new film accounting standard, News Corp. reported a first-quarter profit of $73 million, compared with a loss of $268 million. Operating profit, or income before interest and taxes, which is another widely watched financial metric for News Corp., dropped 7% to $362 million. Revenue in the latest period, however, rose 5% to $3.40 billion from $3.24 billion.

The Fox Entertainment Group, which houses News Corp.'s U.S. television and film assets but is also traded as a separate stock, posted first-quarter net income of $4 million excluding special items, down from last year's $36 million. Revenues rose 16% to $2.1 billion, while cash flow fell 6% to $271 million.

In a conference call with the financial community, News Corp. management reaffirmed its previous earnings guidance for 2002. That guidance calls for operating profit gains in the high single digit percentage range at News Corp. and cash flow growth at the Fox film and TV unit in the low to mid teen percentage range.

News Corp. c.e.o. Rupert Murdoch said this guidance was based on the assumption of an unchanged advertising market, meaning there could be some upside once advertising trends strengthen. Most observers have predicted this might happen later in 2002.

Murdoch on Wednesday also talked about the state of the advertising economy, saying it remained "soft." Before the Sept. 11 terrorist attacks, the company saw a strengthening of revenue trends at its TV stations and the Fox network, which was reversed due to the attacks, according to the c.e.o. But Murdoch added that October and early November have again created "some bright spots" in the advertising picture. TV station advertising remains below year-ago levels, but is strengthening week-by-week, while "network advertising prices have returned to normal," he said.

To strengthen its financial position, News Corp. has continued stringent cost measures, including an ongoing hiring freeze that has reduced the company's staffing level by several hundred positions, Murdoch said. This has eliminated "hundreds of millions of dollars" in the 2002 cost budget, News Corp. president Peter Chernin said. Murdoch added that overall cost reductions in 2002 should reach at least $200 million, although he is "counting on this to be a strong understatement."

Asked about News Corp.'s failed attempt to acquire Hughes Electronics from General Motors, Murdoch said he would his company would "not obsess" over Hughes but refocus on growing existing businesses.

A previous plan to spin off News Corp.'s satellite operations including Hughes in an initial public offering is now on the back burner, according to Murdoch. Saying an IPO was not going to happen "now or in the near future," he cited the current weak stock market and the fact that News Corp. does not need the money from a flotation as reasons. But Murdoch indicated that he would revisit the issue if the planned combination of EchoStar Communications Corp. and Hughes does not get regulatory clearance in Washington.

Shares of Fox were most recently trading at 23.02, up 0.52. American depositary shares of News Corp., which has its main stock market listing in Australia, were at 27.69, down 0.06.

--Georg Szalai in New York for The Hollywood Reporter

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