Time Warner Quarterly Earnings Beat Estimates, All Units Post Lower Profit

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"We look forward to the resolution of the legal challenge to our pending merger with AT&T and remain excited about the benefits of the merger," said chairman and CEO Jeff Bewkes.

Time Warner, the entertainment conglomerate that telecom giant AT&T is looking to acquire for $85.4 billion, on Thursday reported higher-than-expected first-quarter earnings despite profit declines at all its units, namely Warner Bros., Turner and HBO.

First-quarter net income rose from $1.4 billion to $1.6 billion, boosted by a $132 million income tax benefit, compared to a $470 million tax provision in the year-ago period. Time Warner reported adjusted earnings of $2.28 per share, including a 49-cent gain related to the settlement of a U.S. federal tax audit and the retroactive extension of an expired tax law, compared with $1.66 per share in the year-ago period. The Wall Street consensus forecast was for adjusted earnings of around $1.75 per share. Without adjustments in the latest quarter, earnings came to $2.07 per share, up from $1.80.

Time Warner's operating income, meaning income from the performance of the company's business units, dropped 13 percent to $1.8 billion, and adjusted operating Income decreased 8 percent to $2.0 billion "due to declines at all operating divisions," as had been expected.

First-quarter revenue increased 3 percent to $8.0 billion "due to growth at Turner and [HBO], partially offset by a decline at Warner Bros.," the company said.

Time Warner won't hold an earnings call due to its planned takeover by AT&T.

"We look forward to the resolution of the legal challenge to our pending merger with AT&T and remain excited about the benefits of the merger, such as the potential to further strengthen our businesses by accelerating our innovation and increasing our ability to connect more directly with consumers," Time Warner chairman and CEO Jeff Bewkes said in the earnings report.

In federal court last week, Bewkes outlined his reasons why the sale to AT&T should move ahead, including competition from Amazon, Netflix, Google, YouTube and Facebook, and attacked government theories on why the deal should be blocked as "ridiculous."

His other comments in Thursday's earnings report focused on the performance of the various units of the entertainment conglomerate.

"We're off to a strong start to 2018, and we remain on track to meet the financial goals we laid out at the beginning of the year, as we continue to execute our strategic objectives, including investing in and delivering the most compelling content to audiences around the globe and across platforms," Bewkes said. "Home Box Office had another standout quarter, and we recently had the much-anticipated return of Westworld (produced by Warner Bros.), which saw viewership of the second season premiere episode increase 13 percent compared to the prior season's average."

The exec also lauded Turner for another multiplatform airing of the NCAA Division I Men’s Basketball Tournament and highlighted that "CNN was the No. 1 news network among adults 18-34 and remained the leader in digital news." Bewkes also mentioned that year-to-date, TNT’s The Alienist is the top new cable drama and TBS’ The Last O.G. is the No. 1 new cable comedy.

"Warner Bros. remained a leader in television production with top comedies like The Big Bang Theory and Young Sheldon and top unscripted series, including The Voice, The Bachelor and Ellen’s Game of Games, airing across the broadcast networks," added Bewkes. "Theatrically, Warner Bros.’ latest sci-fi epic, Ready Player One, which opened at the end of March, is off to a strong start at the global box office and is the studio’s highest-grossing film ever in China."

Warner Bros.' theatrical releases in the first quarter also included Game Night and Tomb Raider, compared with Kong: Skull Island and The Lego Batman Movie in the year-ago period. Revenue at the studio unit fell 4 percent in the first quarter to $3.2 billion, "primarily due to lower television and theatrical revenues, partially offset by higher games revenues and the favorable effect of foreign currency exchange rates." Film unit adjusted operating income decreased 25 percent to $383 million.

HBO first-quarter revenue increased 3 percent to $1.6 billion as subscription revenue rose 10 percent, which was partially offset by a 29 percent decrease in content and other revenue. But adjusted operating income fell 10 percent to $535 million due to "increased expenses, including programming costs."

At Turner, first-quarter revenue increased 8 percent to $3.3 billion, with subscription revenue up 8 percent, advertising up 9 percent and content and other revenue also up 9 percent. But adjusted operating income fell 5 percent to $1.1 billion due to "higher expenses, mainly increased programming and marketing costs."