Discovery initiates restructuring plan, reports higher Q1 earnings

The cable giant reported better-than-expected earnings a day after CEO David Zaslav (pictured) announced a cost-savings plan expected to result in employee buy-outs and possible lay-offs.
May 5, 2016

Discovery Communications reported better-than-expected earnings on Thursday (May 5) a day after CEO David Zaslav announced cost-savings plans expected to result in employee buy-outs and possible lay-offs.

In an SEC filing, the cable giant disclosed that it has begun restructuring in response to the shifting media landscape. Employees will be asked to take voluntary buy-outs as Discovery aims to save somewhere in the area of US$40-$60 million in severance and personnel costs by the end of the third quarter.

In a memo to staff, Zaslav said the goal is to maximize linear TV business while refocusing on four key areas: content, sports “and other valuable IP,” digital services and OTT products, and international growth markets.

“There is no doubt that change can be challenging and difficult,” he wrote. “This process, while necessary, is a tough one. In making these hard decisions, we are positioning Discovery for many more years of success and growth as a leader in global entertainment.”

The cost-savings measures will also include budget re-allocations, technical and process improvements and organizational restructuring. “The specifics of the cost reductions will vary across business units and geographies, and you will hear from your leadership team in the days and weeks ahead,” he said.

Meanwhile, the company’s first-quarter earnings were up thanks to a boost in distribution and advertising revenue in the United States.

Discovery now expects adjusted earnings per share – excluding currency effects – to grow into the high teens by the year’s end. First-quarter net income was up at $263 million, or 42 cents per share, compared with $250 million, or 37 cents per share, in the same period last year. A gain from the sale of SBS Radio factored into that, as did improved operating results, a decrease in taxes, and lower currency-related losses.

Revenue rose 2% over last year to $1.56 billion, aided by an 7% increase in ad revenue and 8% increase in distribution at the U.S. networks. The gains were the result of “higher pricing and inventory management, partially offset by lower delivery,” the company said. Adjusted OIBDA in the U.S. was up 11% at $473 million.

Meanwhile, overseas networks’ revenues were down 3% to $711 million mostly due to the stronger U.S dollar’s impact on exchange rates but also due to the sale of SBS Radio. Adjusted growth was down 14% to $185 million.

Discovery operates 14 channel brands including Discovery Channel, TLC, Animal Planet and OWN. The company employs 7,000 staffers globally.

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