Discovery Communications Inc. (DISCK, Financial), the entertainment company reported a 9% increase in revenue for the first quarter ended March 31, 2015. The rise in revenue is mainly attributed to growth in the distribution unit, not only in the U.S. but also due to the International networks. Shares of the company increased 1.5% to $33.23 in afternoon trading on Monday, a day before the results were declared.
Financials
The net income reported by the mass media company increased to $0.37 a share or $250 million. Earnings of $0.33 a share or $230 million was reported on $1.41 billion revenue in the same quarter last year. The revenue also witnessed an increase from $1.41 billion to $1.54 billion. This beat analysts' estimates of $0.35 a share on $1.54 billion revenue, according to data compiled by Thomson Reuters. The Adjusted Operating Income Before Depreciation and Amortization also rose 8% to $568 million –Â i.e., $43 million rise. The Maryland-based company saw a 10% growth in U.S. networks while the 2% decrease in International networks led to an 8% overall rise. Though the debt-to-equity ratio of the company is 1.28, the quick ratio of 0.75 is quite weak.
The adjusted EPS reported was 42 cents a share which does not include amortization of acquisition-related intangible assets. This was a good improvement over the 38 cents reported for the prior year. The adjusted OIBDA margin for the quarter was 57% for the U.S. networks and 29% for International networks. Education and Other revenue rose by $14 million as compared to last year. The owner of Discovery Channel provides educational products like a series of K-12 digital textbooks, like Discovery Digital Networks & Discovery Education. The timely program delivery coupled with an unbelievable studio business combination attributed to the rise.
Buybacks
A positive point to be taken into account is the share repurchase effort undertaken by Discovery Communications. For the three-month period, around $317 million was spent on share repurchase alone. 6.4 million Series C common stock was bought back in the quarter at $31.11 a share. A couple of months back, the company bought back 1.7 million shares additionally at $38.83 a share.
Though Discover Communications has a greater interest expense and restructuring charges, the low stock based compensation expense nullified the effect. David Zaslav, chief executive officer and president of the company, said that the year has started off well. “Our strategy of investing in and owning world-class content to leverage across our unparalleled global distribution platform continues to drive operating momentum and strong financial results,” he was quoted saying. He also said that, in spite of the challenging U.S. marketplace and foreign currency issues, the company is doing a good job in increasing market share as well as expanding their distribution and developing programming. Mr. David also said that he was happy with the first quarter performance and the opportunities that have come and will come in the years ahead.
Buy recommendation
TheStreet has rated the Maryland-based company as a BUY. The strengths not only nullify the negative aspects but act as strong forces in future growth. The company has reported positive revenue coupled with good cash flow from operations. Besides, the company has good valuation levels and manageable debts. Profit margins of the company are also growing steadily and Discovery has a good financial position. Given all these factors, the sub par growth in net income does not seem to be such a bad weakness. Investors can be rest assured that their shares will perform well in the next quarter if nothing untoward occurs.
