Time Warner Quarterly Earnings Beat Expectations as Turner, Warner Bros. Grow
The entertainment conglomerate posts a lower profit for HBO, which has spent money on the launch of its standalone streaming service, but video game results boost Warner.
Time Warner on Wednesday reported better-than-expected second-quarter earnings as its Turner networks unit posted solid bottom-line growth and Warner Bros. recorded growth in adjusted operating income despite analysts' expectations for a decline.
Overall, the entertainment conglomerate, led by CEO Jeffrey Bewkes, posted earnings per share of $1.25 compared with 98 cents in the year-ago period. Wall Street had on average forecast $1.02-$1.03.
Stifel, Nicolaus analyst Benjamin Mogil said film unit outperformance "was largely attributed to stronger-than-expected video game contributions coupled with lower-than-expected expenses," while Turner saw content revenue beat his forecasts with 48 percent revenue growth "tied to Turner deliveries to Hulu." He also some some upside to his estimates in HBO's content revenue.
Time Warner's second-quarter net income came in at $971 million, up 14 percent from $850 million in the year-ago period. Revenue increased 8 percent to $7.3 billion due to growth across all units. Adjusted operating income grew 15 percent to $1.9 billion due to increases at Turner and Warner Bros., partially offset by a decline at HBO, which spent money on the launch of a standalone streaming service and in the year-ago period had benefited from an initial payment from Amazon as part of a digital licensing deal.
Warner Bros.' adjusted operating profit in the second quarter rose 46 percent to $344 million due to higher revenue, partially offset by "associated film and print and advertising costs, as well as higher theatrical valuation adjustments." Revenue increased 15 percent to $3.3 billion, "reflecting higher video games and television licensing revenues, partially offset by lower theatrical revenues and the impact of foreign exchange rates."
Analysts in first reactions cited the gaming performance as a key driver behind the better-than-expected results at Warner. The increase in video games revenue was due to the releases of Batman: Arkham Knight and Mortal Kombat X, while TV licensing revenue benefited from the second-cycle syndication of The Big Bang Theory and the subscription VOD licensing of Seinfeld. Theatrical revenue dropped "primarily due to lower worldwide television licensing revenues of theatrical product and a decline in home entertainment revenues due to the comparison against the release of The Hobbit: The Desolation of Smaug in the prior year quarter," Time Warner said.
"Warner Bros. had a solid quarter from a theatrical performance led by Mad Max: Fury Road and San Andreas," MoffettNathanson analyst Michael Nathanson had said in an earnings preview. "However, the second quarter also included underperforming titles, including Entourage and Hot Pursuit." Last year's home video releases of The Lego Movie and the Hobbit film also caused difficult comparisons.
Turner adjusted operating profit in the latest quarter jumped 20 percent to $1.1 billion due to higher revenue and lower expenses, including programming costs that decreased 9 percent "primarily due to the absence of NASCAR programming as well as lower syndicated programming expenses as a result of the abandonment of certain programming in 2014." Revenue rose 3 percent helped by the licensing of select Turner originals to Hulu.
Turner advertising revenue dropped 1 percent due to the impact of foreign exchange rates, partially offset by growth at Turner's U.S. businesses. "The increase in domestic advertising was due to growth at Turner's domestic news businesses and the 2015 NCAA Division I Men's Basketball Championship tournament, partially offset by lower delivery at certain domestic networks and the absence of NASCAR programming," the company said. Ad growth was also hurt by fewer NBA playoff games in the quarter.
HBO's quarterly adjusted operating profit decreased 8 percent to $508 million as a 1 percent climb in revenue was more than offset by higher marketing and technology costs, primarily related to the launch of the HBO Now streaming service. Subscription revenue grew due to higher U.S. rates, partially offset by lower international revenue, "which included the impact of the transfer to Turner of the operation of HBO’s basic cable network in India," the company said. Content and other revenue fell due to lower home entertainment revenue.
"Our results were led by Turner and Warner Bros., and were achieved at a time when we’re investing aggressively to position the company for continued growth, including the successful launch of HBO Now, our standalone domestic streaming service," said Bewkes.
"At Turner, TNT and TBS ranked as the #1 and #2 ad-supported cable networks, respectively, in primetime among adults 18-49, and together with Adult Swim claimed the top 3 spots in primetime among adults 18-34," he added. "Cartoon Network was again the only top 3 kids network to grow its 6-11 audience during the quarter and claimed the #2 spot for the first time. And CNN grew primetime viewership in its key 25-54 demo 25% with the help of its award-winning original programming."
Added Bewkes: "Warner Bros. concluded a very successful upfront, with 62 programs slated for the upcoming television season, including 29 on broadcast networks. That includes a record 20 returning shows and makes Warner Bros. the top supplier of broadcast series again this year. In the quarter, Warner Bros.’ games business also shined with releases of Batman: Arkham Knight and Mortal Kombat X helping make it the top video game publisher for the first half of the year."