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News Corp. Net Hit By Special Charges

UPDATED: Ad revenue strong at cable, broadcast 11/02/2011 04:21:23 PM Eastern

UPDATED: 11:00 p.m. ET

News Corp.'s profits dipped despite strong advertising gains at its broadcast and cable channels because of special charges, including a restructuring charge for its scandal-plagued U.K. newspapers.

First quarter net income was $738 million, or 28 cents per share, versus $775 million, or 30 cents a share, a year ago.  The results were affected by a $91 million pre-tax restructuring charge relating to the company's British papers, including the News of the World, which was closed following reports that the paper had been hacking into the cell phones of newsmakers. The company also had another $130 million in other pre-tax charges. Without the special charges, News Corp. says its net would have been 32 cents a share, up from 29 cents a year ago.

Revenues were up 7% to $7.96 billion.

"The exceptional strength of our financial results during the first quarter across the majority of our segments is confirmation that News Corporation's core operations are strong and that we are on course to achieve our strategic and financial objectives," said chairman and CEO Rupert Murdoch, in a statement. "While we continue to remain mindful of the persistent economic uncertainty in many parts of the globe, I am proud of News Corporation's achievements over the past quarters. I have every confidence that we will build upon these results in the coming quarters and continue to provide consistent stockholder value."

CFO David DeVoe said that the company maintained its full-year guidance that operating income growth would be in the low- to mid-teen range.

News Corp.'s cable network programming group had operating income of $775 million, up 18% from $659 million a year ago.  Revenues were up 13%. At the U.S. channels, affiliate revenue growth was 9% and advertising growth was 13%, led by FX.

The television segment, which includes the Fox broadcast network, registered operating income of $133 million, up 27% from $105 million on an 8% increase in revenues. The gains came from increase network ad revenues generated by a robust national advertising market and the broadcast of the 2011 Emmy Awards. At the same time, retransmission consent revenues increased two-fold, the company said. Those gains were partially offset by lower political ad spending at the stations, and increased market costs at Fox to launch Terra Nova, The New Girl and X-Factor.

Murdoch was not on the company's conference call with analysts, and COO Chase Carey wanted to shift attention from the phone hacking troubles to the success of its other operations.

During the quarter, Carey said, "we continued to execute our initiatives that will enable us to achieve our goals for long-term growth and profit to cash flow. We continue to invest in content with the belief that the expanding appetite of digital platforms will make unique content more valuable than ever." He pointed to new hits including New Girl, X Factor and American Horror Story, and added sports franchises in the UFC and World Cup.

Speaking of sports, Carey said the company wasn't going to buy the Los Angeles Dodgers, and said that while the company would like to see the NBA play its games (some of which are carried on the Fox regional sports networks) the lockout "was not an event that would materially affect our financial for the year."

Carey said the advertising market has been an area of strength. "While we have limited visibility looking forward, the national market continues to be solid, although scatter is not quite as strong as it has been as scatter premiums have pulled back slightly" to the high single digit to low double-digit levels above upfront pricing. He added that cancelations of orders for advertising made in the upfront "are in line with historical experience."

An analysts asked if the company was having issues with advertisers regarding X Factor, because while the show is winning the night, it's not doing as well as the network had hoped when it charged high rates to sponsors. "We've got a number one show.  We make real money off  it. We just picked it up for a second year. And we don't have any make-good issue," Carey said.

There were a couple of questions about the company's governance that stemmed from the way it has handled the British newspaper hacking scandal. In response to a question about James Murdoch's future at the company, Carey said, "we have great confidence in James. James has done a good job, and we are not contemplating any changes."

At News Corp.'s annual meeting last month, some directors, including James Murdoch, received low vote totals for re-election. "We certainly take those votes seriously," Carey said.

March