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News Corp. Lowers Profit Growth Outlook

UPDATED: 6:15 p.m. ET

reporting higher second-quarter earnings, News Corp. said the rest of the year
won't live up to previous expectations in part because of a ratings shortfall
at the Fox broadcast network.

News Corp. CFO  David DeVoe
said during the company's conference call with securities analysts that taking
into account the company's second quarter performance, management now expected
to finish the fiscal year with operating income growth in the mid to high
single digit range. Last quarter, the company said it expected growth in the
high single to low double digit range.

Chase Carey, News Corp.'s COO
said that three businesses were responsible for the earnings shortfall, Sky
Italia, a victim of the Italian economy, the Australian newspaper business, and
Fox Broadcasting.

"It's no secret we had a tough
fall," Carey said of Fox's performance in the new TV season. He said there had
been hopes that ratings for X Factor
would grow when it hit the competition phase, but that those hopes didn't pan

Carey also said the fall was
disrupted by baseball, the elections and Super Storm Sandy and that efforts to
re-start some of the shows on the schedule didn't work out. "It went the other
way," he said.

Finally, he said some of the
network's sports properties added to the bad news, with a World Series sweep,
college football championships that were less-than-compelling and NFL playoffs
that registered double digit ratings drops. "That's a lot of money," Carey
said, referring to the NFL numbers.

Carey said the network's problems
reflected "the built-in uncertainty of the content business" and that "we feel
like we have a really good team" programming the network.

Carey also spent a fair amount of
time answering analysts' questions about Fox Sports 1, the new cable sports
network News Corp. is supposed to launch but hasn't yet announced.

He called the channel the
"world's worst kept secret" and said that the company sees opportunities in the
field. "Sports is a force second to none" in the TV business, he said, adding
that it has been "a cornerstone of our ability to build the businesses we've

Analysts appeared concerned about
the high costs that come with sports, but Carey said "we believe we have a
unique combination of rights and assets to create a very attractive business,"
though he added that the company's would be opportunistic if there was a chance
to enhance the channels' offerings.

In the second quarter, News
Corp.'s cable networks reported big gains, helping the company increase revenue
and operating income.

Net income rose to $2.38 billion,
or $1.01 a share, from $1.06 billion, or 42 cents per share. The results
included $1.4 billion in non-operating gains, partly offset by restructuring
and impairment charges. The company said that adjusted earnings per share came
in at 44 cents, compared with an adjusted 39 cents a year ago.

Revenues rose 5% to $9.43 billion.

Adjusted net earnings per share and revenue surpassed Wall Street forecasts.

"News Corporation's fiscal second quarter performance reflects our strong
momentum. Double-digit gains in our Cable and Television businesses, along with
improvements in our Publishing segment, drove revenue and earnings growth even
as we seized opportunities to invest in our core businesses for long-term and
sustainable growth," CEO Rupert Murdoch said in a statement. 

"The strategies we executed against in the quarter continue to bolster
News Corporation's competitive position and enhance our ability to benefit from
global demand for content, especially sports programming. As we make progress
toward the proposed separation of our entertainment and publishing businesses
later this year, I am confident in the future prospects for both
businesses," Murdoch said.

Cable network operating income was $945 million, up 7% from $882 million a year
ago. Revenues were up 18%, driven by double-digit growth at the regional sports
networks, Fox News, FX and National Geographic channels. Programming costs were
up because of expanded college football and Ultimate Fighting Championship
coverage, plus added NBA games following last year's lockout.

Domestic ad revenue was up 8%. International ad revenue was up 29%. 

Affiliate revenue rose 13% domestically and 42% internationally.

Television operating income rose 19% to $224 million. The company attributed
the jump to retransmission consent revenues that more than doubled and
increased local advertising revenue at the Fox Television Stations, which were
driven by political ad revenues.

Ad revenues were lower at the Fox broadcast network because of lower ratings
and a World Series that was three games shorter than a year ago. 

News Corp.'s earnings included $56 million in costs from the cellphone hacking
scandal that led to the closure of its British newspaper News of the World. A year ago,
the company reported a charge of $87 million due to the scandal.

The earnings also included $23 million in costs from the proposed split into
two companies.