Time Warner hits quarterly records

CEO talks MGM, CNN; touts ad trends

NEW YORK -- Time Warner reported a better-than-expected first-quarter profit gain of 9.8% to $725 million early Wednesday amid financial improvements in all business segments thanks to the advertising recovery and continued film strength. The latter led to the eight consecutive adjusted operating profit gain in the film unit.

Management on a conference call also discussed a potential strategic partnership between CNN and a broadcast network news operation and a potential MGM deal. Plus, they suggested that recent deals with DVD rental firms Redbox and Netflix helped the DVD sales of most recent home video releases.

"We are seeing demand coming back" across key ad segments, chairman and CEO Jeff Bewkes also said in touting the ad recovery as many of his peers have once again done this earnings season.

Asked about a potential acquisition of MGM, Bewkes reiterated that TW doesn't need any deals, but is willing to spend the right amount of money if there are strategic benefits and adequate execution risk. "It could make sense, but only at the right price," he said. "We walked away from this asset before" when it didn't meet the necessary criteria.

Asked by an analyst about the current controversy about film futures trading and whether TW would support the idea, Bewkes said: "We are not putting in bets on that. I don't think you should either."  And CFO John Martin added that TW is in the business of operating a film business rather than trading film futures.

Discussing a potential CNN deal amid renewed chatter about a possible link-up with CBS News, Bewkes said TW has been talking to all parties and suggested an agreement wouldn't be driven by CNN's domestic ratings weakness, but the cost pressures of broadcast news operations.

TW's earnings per share rose from 55 cents to 62 cents in the latest quarter, or 61 cents on an adjusted basis. The company said this set a new quarterly record for TW.

TW also posted its highest quarterly adjusted operating income in history -- $1.4 billion, up 37%. And the TV networks unit also reached its highest quarterly profitability ever.

Revenue rose 5% over the year-ago period to $6.3 billion, marking the highest gain in nearly two years. The increase was driven by growth in the film and TV networks units. Total company ad revenue rose for the first time since the third quarter of 2008, management said.

Based on the strong result, TW slightly raised its full-year target of growth for adjusted earnings per share from the mid-teens percentage range to "at least in the mid-teens," compared with $1.83 in 2009. CFO Martin on the earnings conference call said the guidance may prove conservative, but with limited ad visibility and big film releases to come, the company wanted to stay conservative in its guidance.

"Time Warner is off to a great start in 2010, delivering record financial results for our first quarter," Bewkes said, later adding he is "increasingly optimistic" about the firm's growth outlook for the rest of the year and beyond.

Film unit revenue rose 2%, with operating profit rising 43%. Adjusted operating profit brought in its eight consecutive quarter of growth. TW cited more and well-performing home video releases, which meant a home video increase despite a sluggish overall market, and lower restructuring costs as key drivers. The latest quarter included theatrical and DVD contributions from "Sherlock Holmes," "The Blind Side" and theatrical revenue from "Valentine's Day." Bewkes highlighted that "Holmes" and "Blind Side" came out on DVD after Warner Bros.'s recent 28-days windowing deals with Redbox and Netflix. He suggested they "benefitted from the delayed rental window" as most DVD sales happen in the first month of release.

Bewkes on Wednesday wouldn't let analysts tempt him into promising a profit gain for the full year at the film unit, which had a "tremendous" 2009 and faces particularly tough comparisons in the second half. "Clash of the Titans" has outperformed TW's expectations, and the latest "Harry Potter," "Sex and The City 2" and other key releases are still coming, he said. Plus, "Old Christine" is going into syndication and"Two And a Half Men" into cable syndication. "We still have very high hopes," Bewkes summarized, adding it will be "a very strong year" for film profits if all goes well. 

TW's publishing unit reported its first ad gain since the fourth quarter of 2007.

At TW's networks unit, which includes Turner Broadcasting and HBO revenue rose 9%, including a 9% advertising gain, and operating income climbed 28%. Ad gains at U.S. and international entertainment networks were partially offset by declines at the firm's U.S. news networks, which include CNN. "We are working to fix that," Bewkes said about CNN's ratings weakness, adding that shows must be more compelling to boost the time viewers spend watching.

Scatter ad market prices were up 20%-30% in the first quarter and remain strong in the current second quarter, management said.

Bewkes on Wednesday also mentioned Turner's signing of Conan O'Brien and its joint deal with CBS for the NCAA men's basketball rights as latest evidence of "meaningful progress" toward its long-term strategic goals, which include investing in successful content franchises. He said the deal with O'Brien means that TBS "will essentially own" late-night TV.

Wall Street analysts lauded the latest results for exceeding expectations, but at least one suggested the guidance may not be strong enough to woo investors.

Collins Stewart analyst Thomas Eagan called the first-quarter figures "impressive" and particularly lauded the TV networks unit for bringing in growth despite ratings challenges for several entertainment networks and CNN. "It appears that the Street's concern over the decline in CNN's ratings was overdone," he said.

Barclays Capital analyst Anthony DiClemente also highlighted the "significant beat" in TW's results, but wondered if the full-year guidance will be good enough for investors.