Time Warner Earnings Preview: What to Expect

Courtesy of Warner Bros.
'Batman v. Superman: Dawn of Justice'

'Batman v. Superman: Dawn of Justice' will play into the company's first-quarter film unit results.

Time Warner, led by CEO Jeffrey Bewkes, will report its first-quarter results early on Wednesday, with Wall Street looking for improvement over the year-ago period.

Analysts on average call for earnings per share of $1.29, compared with $1.19 in the same period a year ago. Revenue is expected to rise more than 2 percent to $7.29 billion from $7.13 billion, according to Street expectations.

Turner and HBO are expected to grow their operating profit for the quarter, while analysts say Warner Bros. is likely to post a small decline compared with the year-ago period that included box-office revenue for American Sniper, higher TV licensing revenue primarily due to the subscription VOD sale of Friends and higher video games revenue.

Some have recently increased their earnings forecasts. “The TV ad market looks a bit healthier than we had forecasted heading into the quarter, and Batman v. Superman was more front-end loaded into the March quarter than we had assumed,” said FBR analyst Barton Crockett, who recently raised his quarterly adjusted earnings estimate.

Film performance will get attention in the quarter for the box office, and the marketing cost, for Batman v. Superman: Dawn of Justice, which opened in mid-March. Macquarie Securities analyst Tim Nollen expects film unit adjusted operating income to drop from $330 million in the year-ago period to $308 million.

Management in the context of Batman v. Superman is expected to once again touch on the DC Entertainment film slate. “Batman v. Superman starts the DC Comics superhero movie cycle,” said Nollen. “Despite poor critical reviews, Batman v. Superman opened up strongly … all told, the movie has grossed nearly $835 million globally since release.”

He continued: “Over the next five years, Warner Bros. is planning to release nine more DC Comics movies, with Suicide Squad being the next (Aug. 5). In addition, Warner Bros. is currently producing eight DC Comics-related TV shows. Both of these should also continue to drive consumer products and video game sales growth.”

On the TV side, Time Warner has seen continued ratings challenges at TBS and TNT, but positive momentum at CNN. So, the ratings outlook and what it means for advertising sales will be a topic in focus on the earnings call. “Given what was largely a challenging year for TBS and TNT on the ratings front, we are interested in the company's upfront strategy,” said Stifel Nicolaus analyst Benjamin Mogil.

Meanwhile, analysts don’t expect a specific HBO Now subscriber count update on the call. Said Mogil: “We do expect directional commentary around strong subscriber growth in the current quarter, but would view this commentary somewhat cautiously given the strong quarterly slate.”

MKM Partners analyst Eric Handler, who has a "buy" rating on the stock, remains bullish on Time Warner. He recently raised his price target from $78 to $86 "as a result of our positive outlook" and investors' willingness so far in 2016 to put money back into big media and entertainment stocks. "We continue to believe that Time Warner is in the early innings of a new content cycle with multiple catalysts beginning to unfold," he wrote. "HBO is gaining some momentum with its OTT service, and Warner Bros. appears to have a strong film lineup led by Suicide Squad and Fantastic Beasts."