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Discovery (DISCA) Up 0.1% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Discovery Communications (DISCA). Shares have added about 0.1% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Discovery due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Discovery's Q2 Earnings & Revenues Beat Estimates

Discovery reported second-quarter 2020 adjusted earnings of 77 cents per share, beating the Zacks Consensus Estimate by 2.7% but decreasing 21.4% year over year.

Revenues slid 11.9% year over year to $2.54 billion but beat the consensus mark by 1.2%.

This year-over-year decline was primarily attributed to a decrease in advertising (50.1% of revenues) revenues negatively impacted by the coronavirus pandemic.

Top-Line Details

Advertising revenues dipped 21.4% year over year to $1.27 billion. However, Distribution revenues climbed 1.6% year over year to $1.23 billion. Other revenues were $43 million, down 28.3% from the year-ago quarter.
 
U.S. Networks (69.1% of revenues) revenues declined 5.7% on a year-over-year basis to $1.76 billion. Advertising revenues declined 13.5% while distribution revenues grew 7.4%.

Total portfolio subscribers of Discovery’s fully distributed networks were 5% lower on a year-over-year basis. In the second quarter, Discovery's portfolio of networks in the United States gained more share in primetime than any other TV portfolio in each of the company’s targeted demographics, per Nielsen data.

International Networks revenues (30.8% of revenues) slipped 23.2% year over year to $783 million. Advertising and distribution revenues were down 40.8% and 6.2%, respectively.

Notably, total share of viewing across the international portfolio in the second quarter increased 4%, on average, with strong share growth in India, the United Kingdom and Italy.

Operating Details

In the second quarter, selling, general and administrative (SG&A) expenses decreased 10.4% from the year-ago quarter to $635 million. This year-over-year growth was due to 9% growth in U.S. Networks SG&A and a 13% increase in International Network SG&A.

Higher marketing expenses related to Discovery’s next-generation initiatives escalated SG&A year over year.

Adjusted operating income before depreciation & amortization (“OIBDA”) decreased 12% from the year-ago quarter to $1.13 billion. Excluding the foreign-exchange impact, OIBDA decreased 3%.

U.S. Networks adjusted OIBDA decreased 5.7% from the year-ago quarter to $1.06 billion.

Moreover, International Networks adjusted OIBDA declined 32.5% from the year-ago quarter to $193 million. Excluding the forex impact, adjusted OIBDA was down 2%.

GAAP operating income declined 21.3% year over year to $717 million.

Balance Sheet & Cash Flow

As of Jun 30, 2020, cash & cash equivalents were $1.68 billion compared with $1.45 billion as of Mar 31, 2020.

Moreover, as of Jun 30, 2020, long-term debt was $14.94 billion, higher than $15.27 billion as of Mar 31, 2020.

Free cash flow surged 47% year over year to $879 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 5.46% due to these changes.

VGM Scores

Currently, Discovery has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Discovery has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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