Time Warner Q3 profit falls, raises forecast

Film unit on track for record full-year profit

NEW YORK -- Time Warner's third-quarter profit fell 38%, but exceeded Wall Street expectations, leading the media giant to raise its full-year profit forecast.

TW on Wednesday reported stronger profitability in its TV networks and film units, while the magazine division and AOL, which is expected to be spun off in early December, were weaker.

TV advertising revenue declined only about 1% in the latest sign of improving industry trends.

TW's overall quarterly profit of $661 million was down from $1.07 billion in the year-ago period. Revenue fell 5.9% to $7.14 billion.

The company's TV unit posted a 3.2% profit improvement on a 5.2% revenue gain.

Film earnings rose 5.8% despite a 4% revenue drop.

Key theatrical releases in the quarter included the latest "Harry Potter," "The Final Destination" and carryover from "The Hangover," but revenue was slightly below the year-ago period, which benefited from "The Dark Knight." Home video and interactive games revenue also declined, plus there were unfavorable currency impacts.

Based on the better-than-expected quarterly figures, TW raised its estimate for 2009 adjusted profit per common share to at least $2.05 from $1.98. For its core content businesses, it expects an adjusted full-year profit of $1.75 per share, up from $1.42 in 2008.

"Time Warner is firmly on track to post solid results this year in spite of the tough economic environment," said TW chairman and CEO Jeff Bewkes.

Analysts and management lauded particularly the film unit's out-performance, with Bewkes predicting record film profits for the full year 2009 despite continued weakness in the DVD business.

The film division slightly grew operating income before depreciation and amortization in the third quarter despite expectations of a decline. Stronger-than-expected theatrical results and past cost measures contributed to the upside surprise.

"We find it remarkable that TW has been able to grow its film OIBDA for each of the past six quarters, through massive cyclical and structural downturns, and over a time period where the other five major film studios have suffered 30%-40% year-over-year OIBDA declines on average," said Barclays Capital analyst Anthony DiClemente.

But Sanford C. Bernstein analyst Michael Nathanson looked ahead and warned: "In 2010, we remain concerned about the film studio (operating cash flow) given that there is no Harry Potter DVD and no action tentpole in summer 2010."

On his earnings conference call, Bewkes lauded his film unit and its management team. "Warners is having another fantastic year," he said.

Despite fewer releases, it is still on track to meet or exceed last year's U.S. boxoffice of $1.9 billion, he added.

Management said while ad trends were better than expected in the third quarter, fourth-quarter ad figures should decline due to tough CNN comparisons with last year's elections and lower TBS and TNT network ratings in September and October amid lower baseball playoff games and fewer big film and show premieres.

But CFO John Martin said scatter ad market prices are up in the double digits from the weaker upfront, although only single digits over last year's scatter.

And Bewkes said the NBA is off to a strong ratings start and was bullish on a new George Lopez late-night show and upcoming series.