Time Warner Earnings Flat; Sales Rise at Cable Nets

Nov 5, 2008  •  Post A Comment

Time Warner reported basically flat financial results for the third quarter, and said it was adjusting its full-year business outlook downward in the face of a “challenging economic environment.” Revenue rose at the company’s cable networks.
Net income totaled $1.07 billion, or 30 cents a share, compared to $1.09 billion, or 29 cents a share, in the same quarter a year ago, the company said in a statement.
Revenues came to $11.7 billion in the quarter, little changed from last year.
“The quarter’s solid earnings and superior free cash flow show the resilience of our businesses–in spite of the challenging economic environment–reflecting both our diversified revenue streams and our ability to make compelling branded content consistently,” CEO Jeff Bewkes said.
Earnings rose at Time Warner’s networks and cable segments, while AOL continued to be a drag. Ad revenues at Turner Broadcasting were up 9%, a contrast to Viacom’s networks, which were down 2% for the quarter.
Time Warner said it would be taking a charge of $100 million due to a restructuring of its magazine division. Because of that, and the economic outlook, the company said it expected adjusted operating income to be up 5% for the year, compared to its earlier estimate of 7% to 9% growth. Factoring out the restructuring costs, Mr. Bewkes said, Time Warner’s performance would be at the low end of its original estimates, a good showing given the economic situation.
During the company’s earnings conference call with analysts, Mr. Bewkes said that Time Warner has shown it can make compelling content on a consistent basis.
“The reason is our brands and our scale enable us to invest more in development and innovation, which provides better economics, which in turn attracts talent. That increases the quality and success rates of what we do. That builds brand equity and drives audiences, which fuels further investment, attract further talent. Essentially a virtuous circle,” Mr. Bewkes said.
That’s becoming more important because “as media consumption shifts, hits are growing in value. Consumers have more choice in how when and where they use media and they’re using that choice to gravitate both to the niche content and to the biggest hits,” he said. That’s true of both traditional platforms as well as new digital platforms, he said.
Mr. Bewkes pointed to both Turner Broadcasting’s news and entertainment networks as examples of businesses where investment has led to content that drives revenues.
Time Warner’s networks division, which includes Turner and HBO, reported a 21% increase in adjusted operating income to $1 billion in the quarter.
“Turner’s ad revenues climbed 9% and that was driven by growth in both news and entertainment and this is mainly due to higher CPMs and audience growth domestically, as well as an increase in the number of units sold internationally,” said Time Warner CFO John Martin.
“Looking to the fourth quarter, we remain cautiously optimistic that Turner will once again continue to post solid advertising growth,” Mr. Martin added. “We can’t yet fully gauge the impact of recent events in the financial markets on the broader economy and Turner would not likely be immune to any widespread protracted ad slowdown.”
He added that certain advertiser categories—such as automotive and financial services—will be challenged. But he said benefits of this year’s strong upfront advertising sales market are kicking in this quarter.
“Cancellation rates are running at normal levels, and while the current scatter market is moving cautiously, it still is running modestly ahead of upfront pricing,” Mr. Martin said.
Mr. Bewkes opened the call by noting that investors may be looking at other important news this morning. “You may have heard about it on CNN,” he said referring to the election results.
He added that while CNN has benefited from interest in the presidential election, there was no reason to believe it couldn’t continue to grow following the election.
Mr. Bewkes noted that HBO’s new series “True Blood” has expanded its audience and said it now ranks as HBO’s third most popular series behind “The Sopranos” and “Sex and the City.”
He also observed that Warner Bros television studio had produced the two hits of the new broadcast season, “Fringe” and “The Mentalist.”
Time Warner Cable produced higher than expected earnings, but also modestly lowered its full-year outlook because of the economy.
Mr. Bewkes said the company still plans to spin off its ownership of Time Warner Cable and that the transaction is on pace to be completed early next year. He said that Time Warner Cable has financing in place to be able to pay the big dividend Time Warner would be receiving as part of the deal.
Following the deal, Time Warner’s stock price may decline, and the company is considering a reverse stock split to improve its attractiveness and liquidity.
Spencer Wang, an analyst at Credit-Suisse, said the earnings were better than expected.
“Cable ad growth at Turner of +9% was strong and beat our +6% est.,” he wrote in a research note. “We believe this performance reflects strong ratings and higher pricing as Turner remains one of the main beneficiaries of broadcast network ratings underdelivery. On the other hand, cable ad growth at Time Warner Cable of +1% reflects continued softness in local ad markets.”
He added that AOL’s advertising related business came in below expectations, declining 6% year over year.
(Editor: Baumann)


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