As Rupert Murdoch's News Corp Ltd prepares to unveil its second quarter results, investors are bracing for a slump in earnings, big writedowns, job cuts and a downgrade to the company's full year outlook.
The result, due to be released on Friday, will expose the impact of the global financial crisis and the advertising downturn on the US-based media conglomerate in the last three months of calendar 2008.
Analysts expect News Corp's operating income, or earnings before interest and tax (EBIT), to fall by about 30 per cent to between $US831 million and $US933 million in the second quarter, from $US1.4 billion in the prior corresponding period.
News Corp started the current financial year with a nine per cent drop in first quarter operating income to $US953 million.
Company researchers are also expecting News Corp to revise its 2008/09 outlook and would not be surprised if the company announced asset writedowns.
The media giant, which owns 20th Century Fox, Fox News Channel and Dow Jones & Co, publisher of The Wall Street Journal, has already warned investors the company would feel the pain of the global economic slowdown.
In November, News Corp downgraded its full year guidance, saying it expected operating income to fall in the low to mid-teens, in terms of percentage points.
Just a few months earlier, News Corp had forecast annual growth of four to six per cent for the year to June 30, 2009.
The annual operating income forecast comes off an adjusted base of $US5.13 billion for 2007/08.
Chairman Mr Murdoch said in November that all media companies were being tested by the economic slowdown as advertising revenue fell.
He warned that News Corp, which owns newspapers such as The Australian and The Daily Telegraph, was on the path towards "leaner operations" and "across-the-board cuts".
UBS analyst Michael Morris is now predicting a 21.5 per cent decline in News Corp's annual operating income to $US4.03 billion, due to the weak macro-environment and related declines in advertising revenues.
"We believe that the company will have to revise its fiscal 2009 outlook on its second quarter earnings call," Mr Morris said.
Given the announcement of writedowns of goodwill at peers such as CBS Corp and Time Warner, News Corp may also have write-downs forthcoming, he said.
He estimates the company could writedown $US10 billion, with one possible unit ripe for a writedown being Dow Jones, which News Corp bought for $US5.6 billion in 2007.
"In particular, we see possible issues at the broadcasting and publishing businesses (including Dow Jones)," Mr Morris said.
Mr Morris said while these charges were non-cash, they reflected high prices paid for earlier acquisitions and should serve as a caution to management teams that may depend too heavily on acquisitions for growth.
Deutsche Bank analyst Andrew Anagnostellis said News Corp faced a range of challenges at present, such as a difficult television advertising market, a weak DVD market, the poor film performance of movies such as Australia and the impact of the softer Italian economy on pay TV business Sky Italia.
