Time Warner Reports Best Global Box-Office Year, Record HBO U.S. Sub Gain

Oscar - Contending Wardrobe - Wonder Woman-GAL GADOT - Publicity-H 2018
Courtesy of Warner Bros. Entertainment Inc. and Ratpac-Dune Entertainment LLC

The company, which AT&T is looking to acquire for $85.4 billion, posts improved quarterly earnings.

Time Warner, the entertainment conglomerate that telecom giant AT&T is looking to acquire for $85.4 billion, on Thursday reported higher fourth-quarter earnings and touted some full-year records for key divisions.

Chairman and CEO Jeff Bewkes lauded Warner Bros. for having had "its best year ever at the global box office," grossing more than $5 billion, led by Wonder Woman, It and Dunkirk.

He also emphasized the continued success of HBO. "Led by its great content, Home Box Office delivered its highest increase in domestic subscribers ever in 2017 and its best subscription revenue growth in over 20 years," he said about the more than 5 million U.S. subscribers it added across its HBO and Cinemax services.

Time Warner reported adjusted operating income of $1.92 billion for the period ended on Dec. 31, or adjusted earnings of $2.66 per share, compared with $1.76 billion in the year-ago period, or $1.25 per share. Without adjustments in the latest quarter, earnings came to $1.75 per share, up from 40 cents. The Wall Street consensus forecast was for adjusted earnings of $1.44 per share.

Warner Bros.' quarterly earnings were down, with adjusted operating income falling 12 percent to $514 million as higher revenue was more than offset by higher costs of revenue, as well as higher restructuring and severance costs. "Theatrical revenues decreased as lower home entertainment revenues related to the comparison to last year’s release of Suicide Squad were partly offset by higher television licensing revenues of theatrical product," the company said.

Time Warner's Turner cable networks unit grew fourth-quarter adjusted operating income by 20 percent to $1.0 billion. Subscription revenues rose 14 percent, content and other revenue 32 percent and advertising revenue 2 percent, which was partially offset by higher expenses, including increased programming costs.

HBO's adjusted operating income in the fourth quarter increased 12 percent to $483 million thanks to a 16 percent gain in subscription revenue, partially offset by a 7 percent decrease in content and other revenue and higher expenses, including for programming and marketing.

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

MKM Partners analyst Eric Handler in a preview report said quarterly earnings were less in focus for Wall Street right now, emphasizing that "March 19 is a more important date. On that day, the U.S. District Court for the District of Columbia will begin hearing the Department of Justice's lawsuit to block AT&T's proposed acquisition of Time Warner.

"One concern we have with the upcoming suit is the presiding judge Richard Leon was also overseeing the settlement between the DOJ and Comcast/NBCUniversal back in 2011," Handler wrote. "Judge Leon expressed some concerns about the consent decree and Comcast's willingness to abide by the terms of the settlement. However, judge Leon has also demonstrated he is not always going to side with the government, which could help level the playing field for AT&T."

MoffettNathanson analyst Michael Nathanson on Wednesday upgraded his ratings on Time Warner's stock to "buy" from "neutral," citing "the belief that the risk/reward, given the standalone value of Time Warner if the deal breaks, is massively to the upside."

He added: "To be clear, we are not claiming to have any ground-breaking insight into who will emerge victorious from the upcoming trial, which starts in the middle of March. Let’s call it 50/50. Our Time Warner upgrade is simply based on our observation that Time Warner should trade, at least, at current levels if the AT&T deal is blocked."