Time Warner Has "More Than Sufficient Scale," Will Double Earnings, Jeff Bewkes Says

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The chairman and CEO opens the entertainment conglomerate's investor day

Time Warner chairman and CEO Jeffrey Bewkes told an investor day Wednesday that the company has entered "a new era" after selling off various units and appointing new unit leaders, forecasting the firm would double its earnings in the coming years. 

Bewkes added that TW has "more than sufficient scale to compete" and to continue to grow and do well despite recent chatter about a possible takeover.

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Time Warner has grown adjusted earnings per share of 25 percent on a compound basis over the past five years, faster than peers, and brought in shareholder returns above peers and the broader market, said Bewkes. Last year, it had adjusted earnings of $3.51 per share.

TW will reach adjusted earnings of "close to $6" per share by 2016 and more than $8 by 2018, Bewkes said Wednesday. "We will more than double our earnings over the next several years," he said, signaling possible upside even beyond that.

And he said that the current unit leaders are young, ambitious and very collaborative, meaning "we are seeing that collaboration increase" among units. Bewkes cited a new global kids collaboration between Turner and Warner Bros.

Bewkes opened the entertainment conglomerate's investor meeting in New York, which was webcast, just after 9:30 a.m. local time. Analysts said before the event that Bewkes and his team would outline the company's longer-term growth outlook, in part to justify a decision three months ago to rebuff an $80 billion takeover offer from Rupert Murdoch's 21st Century Fox.

After the early part of the event, TW's stock at 10:05 a.m. ET was up 3.6 percent at $73.20.

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After the Fox offer — which amounted to $85 a share and boosted the stock — was withdrawn, Time Warner's stock dropped. Several analysts have argued that the company and its stock have upside, but also face some challenges.

Without mentioning the Fox bid, Bewkes highlighted that Time Warner has much upside potential by investing more in content. Highlighting Time Warner's "unmatched video content assets" and the world's biggest studio for TV and film production, he said: "Our scale, our brands, the management ... put us in a position to capitalize on the trends in the world." Bewkes particularly highlighted strong demand for high-quality video content.

Among the topics at the meeting was also how the company will spend savings from recent and coming job cuts on growth opportunities, including original content. Scheduled to speak at the meeting along with Bewkes were Turner Broadcasting System CEO John Martin, HBO CEO Richard Plepler, Warner Bros. CEO Kevin Tsujihara and Time Warner CFO Howard Averill.

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Before Bewkes' opening comments, the company screened a highlight video with some of its big shows and films, including The Hobbit franchise and HBO's True Detective.

Martin followed Bewkes, saying he was confident that the TV networks arm would continue to grow fast in the coming years and possibly exceed its own targets. Saying he was "pleased with the growing momentum" at TNT, Martin pledged to double programming spending on original shows for TNT and TBS from $500 million annually to $1 billion by 2018.

He also touted Turner's sports business and growing kids business worth $1.3 billion today. Sports amounts to just 4 percent of programming costs, but 25 percent of advertising revenue, Martin said. Sports programming has also allowed Turner networks to win about 10 percent of nights.

And he touted CNN's continued ability to break news and draw viewers when big news breaks. The most misunderstood part of CNN is its strength in digital reach, Martin said. He argued that CNN is the top news network in total reach, ahead of Fox News, and said CNN is getting younger in the U.S., with viewers "almost a decade younger" than those of Fox News. Overall, Martin said he was "hugely bullish" on CNN's outlook. But he acknowledged that the company had to "expand the brand promise" of CNN.

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Turner's $3.5 billion operating earnings last year came amid "extremely attractive financial growth" in recent years, Martin said. Through 2018, he predicted continued double-digit growth following 13 percent compound annual growth over the past five years. He said Turner would take a charge in TW's third-quarter earnings for 1,500 layoffs that are currently in the works and for programming the networks unit has decided to abandon because it doesn't fit Turner networks' brand promises anymore.

Martin cited original content, highlighting that Turner spends much more than such competitors as AMC Networks, kids TV and digital growth as key growth areas for Turner. He also addressed ratings trends, saying that including digital devices, Turner believes video consumption is up slightly, with the inability to measure digital usage accurately accounting for a majority of the drop in reported ratings.

Martin also said the firm has started to address ratings weakness at TruTV with a repositioning, signaling confidence that the network will improve again. International earnings at Turner should grow in the mid- to high-teen percentage range, Martin said.

The Turner boss said in kids TV, the unit's domestic and international channels will collaborate more than in the past to build global character franchises. The Cartoon Network's Adult Swim programming block "is a brand that we can bring outside," he said, adding, "This is a brand that we think has got enormous global opportunity to potentially go OTT and build new businesses on the back," with Cartoon Network also having opportunities abroad to become available via OTT, or broadband.

Email: Georg.Szalai@THR.com
Twitter: @georgszalai