Time Warner First-Quarter Earnings Exceed Expectations

Jeff Bewkes | Time Warner
Michael Loccisano/Getty Images

2010 Pay: $26.3 million (+34.2% from 2009)
Time Warner stock change for fiscal year: +10.4%

The conglomerate, led by CEO Jeffrey Bewkes, posted record adjusted operating profit for Turner, helped by March Madness, while Warner Bros. benefited from the success of 'American Sniper' but recorded a lower profit.

Time Warner on Wednesday reported better-than-expected first-quarter earnings as its Turner networks unit posted a 26 percent increase in adjusted operating income to hit its highest quarterly result ever.

The entertainment conglomerate, led by CEO Jeffrey Bewkes, posted earnings per share of $1.19 compared with 97 cents in the year-ago period. Wall Street had on average forecast $1.09. The figures exclude Time Inc., which the company spun off into a separate company last year.

Net income came in at $970 million, down from $1.29 billion in the year-ago period. But adjusted net income from continuing operations rose from $885 million to $1.01 billion. The adjusted figures exclude various items to focus mostly on the underlying operating performance.

Operating income fell 13 percent to $1.8 billion, with the company saying that was largely due to $441 million it got in the year-ago period for the sale and leaseback of its space in the Time Warner Center in midtown Manhattan. But adjusted operating income grew 12 percent to a company record $1.8 billion. Company revenue rose 5 percent to $7.1 billion, slightly ahead of analysts' expectations.

TW on Wednesday also reaffirmed its full-year financial outlook. "We got off to a very strong start in 2015," Bewkes said.

Analysts said the positive earnings surprise was driven by Turner. "The big positive in the first quarter was Turner's advertising (+4 percent versus our +1 percent estimate) despite currency headwinds as the NCAA Tournament has the strongest ratings in two decades," said Wells Fargo analyst Marci Ryvicker. And Guggenheim's Michael Morris said: "Advertising revenue grew 4 percent, ahead of our 1.4 percent forecast. We believe that the drag from foreign exchange was significant, implying a domestic ad growth rate well ahead of our 2 percent forecast."

TW's stock rose slightly before the market open.

HBO saw revenue rise slightly, but adjusted operating profit dropped slightly as the company reinvested more in original programming, with programming costs up 9 percent, and spent money on the marketing of the HBO Now service.

At Warner Bros., the box-office revenue for American Sniper was among the positive trends that boosted overall revenue, but adjusted operating profit fell amid higher costs.

At the Turner cable networks, key channels saw positive ratings trends in the latest quarter, while foreign-exchange effects continued to affect results from TW's international channels. The unit particularly benefited from airing March Madness games, which boosted advertising revenue. TBS was the top cable network in primetime with audiences 18-34 and 18-49, and Adult Swim was the top channel in total day for the same demos. CNN grew its total day ratings in the core 25-54 demo by 20 percent.

At Warner, revenue increased 4 percent to $3.2 billion amid higher TV licensing revenue primarily due to the subscription VOD sale of Friends and higher video games revenue, but also higher theatrical revenue led by American Sniper. The gain was partially offset by the effect of foreign currency exchange rates.

Warner's adjusted operating income declined 13 percent to $330 million as the higher revenue was more than offset by higher film and advertising costs "due to the mix of theatrical releases and video game product," the company said.

HBO revenue grew 4 percent to $1.4 billion on higher U.S. subscription rates, higher home entertainment and higher international licensing revenue. HBO's adjusted operating profit declined 1 percent though to $458 million due to higher programming, distribution and marketing costs.

At Turner, revenue rose 5 percent to $2.7 billion as advertising revenue rose 4 percent helped by "growth at Turner’s domestic businesses mainly due to the 2015 NCAA Division I Men’s Basketball Championship tournament" and "growth at Turner’s news businesses," the company said. Subscription revenue grew due to higher domestic rates partially offset by lower domestic subscribers. International ad and  subscription revenue growth was more than offset by the impact of foreign exchange rates.

Turner's adjusted operating profit increased 26 percent to $1.1 billion amid higher revenue and lower expenses, "including lower marketing, programming and general and administrative costs, largely as a result of operational efficiency initiatives and timing," the company said. Programming costs fell 3 percent due primarily to timing issues and lower syndicated programming expenses as a result of the abandonment of certain programming in 2014.

Twitter: @georgszalai