Time Warner Quarterly Earnings Beat Expectations

Time Warner Center Manhattan New York City - H 2012
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Time Warner Center Manhattan New York City - H 2012

The company's Warner Bros., HBO and Turner units all posted growth in the third quarter.

Time Warner on Wednesday reported better-than-expected third-quarter earnings. The entertainment conglomerate's Warner Bros., HBO and Turner units all posted growth in the period.

The entertainment conglomerate, led by CEO Jeffrey Bewkes, reported adjusted earnings from continuing operations of $1.25 per share, compared with $1.22 per share in the year-ago period, or 97 cents on an adjusted basis. Wall Street had on average forecast $1.09 per share. Net income reached $1.04 billion, compared with $967 million in the year-ago period.

Adjusted operating income, another profitability metric, jumped 85 percent to $1.8 billion due to growth across all divisions. Operating income rose 89 percent to $1.8 billion. Quarterly revenue increased 5 percent to $6.56 billion due to growth at Warner Bros. and HBO, partially offset by a decline at Turner. Revenue and adjusted operating income figures included the unfavorable impact of foreign exchange rates of $290 million and $160 million, respectively, in the latest quarter.

Restructuring and severance costs related to layoffs across the company affected the company's year-ago financials as did write-downs at Turner for acquired series, such as The Mentalist.

Based on its results, TW on Wednesday reaffirmed its 2015 full-year guidance. The company continues to expect 2015 adjusted earnings per share from continuing operations to be in the $4.60-$4.70 range.

"We had another very good quarter," said Bewkes. "Our revenue growth was led by Warner Bros. and Home Box Office and illustrated how our investments in great content have been paying off in our traditional television businesses, as well as in newer areas such as video games. In September, HBO received a record 43 Primetime Emmy Awards, the most of any network for the 14th consecutive year. That included 12 awards for Game of Thrones, setting a record for a series in a single year."

Added the CEO: "Warner Bros. solidified its position as the leading producer of broadcast series on television with the debuts of Blindspot and Supergirl — the two most-watched new shows among adults 18-49 this broadcast season. Supergirl represents one of the eight shows on television this season based on IP from DC Entertainment, which is also a driver behind the record year Warner Bros. is having in video games. Through the first three quarters of 2015, Warner Bros. was the top video-games publisher in the U.S."

And Bewkes said: "At Turner, buoyed by our coverage of the Major League Baseball playoffs, TBS is the number-one ad-supported cable network in primetime among adults 18-49 year-to-date. Cartoon Network continued to gain share, ending the third quarter as the number-one ad-supported cable network in total day among kids 6-11. Adult Swim also stood out as ad-supported cable’s number-one total-day network among adults 18-34 for the 30th consecutive quarter. And CNN continued to grow its primetime ratings across all key demographics in the quarter."

At Warner Bros., third-quarter revenue increased 15 percent to $3.2 billion, "reflecting higher video games and television licensing revenues, partially offset by the impact of foreign exchange rates, the absence of revenues from a patent license and settlement agreement in the prior-year quarter and lower theatrical revenues."

Box-office releases in the third quarter included The Man From U.N.C.L.E, which underperformed; The Intern, which was released in late September; Magic Mike XXL and Black Mass. Warner Bros. had a difficult summer overall, with Hot Pursuit and Entourage also coming in below expectations. The expected loss for U.N.C.L.E was previously estimated at $80 million-plus.

The increase in video games was primarily due to the releases of Lego Dimensions and Mad Max, as well as carryover revenues from several titles, including Mortal Kombat X and Batman: Arkham Knight. TV licensing benefited from the initial cable and off-network availability of 2 Broke Girls and the initial cable availability and subscription VOD licensing of Person of Interest.

Film unit adjusted operating income jumped 61 percent to $388 million, due to the increase in revenue, lower theatrical and videogames valuation adjustments and decreased restructuring and severance costs, "partially offset by higher print and advertising costs," the company said.

HBO third-quarter revenue rose 5 percent to $1.4 billion due to higher subscription and content revenue. "Subscription revenues grew primarily due to higher domestic rates, partially offset by lower international revenues, which included the impact of the transfer to Turner of the operation of HBO’s basic cable network in India," the company said. "The increase in content and other revenues primarily reflected higher domestic licensing revenues."

HBO's adjusted operating income increased 37 percent to $519 million on the higher revenue and lower expenses. "The decrease in expenses was mainly due to lower restructuring and severance costs, as well as decreased distribution and programming costs, partially offset by higher marketing and technology costs," the company said. "Programming costs decreased 6 percent, primarily reflecting lower acquired theatrical programming costs. The higher marketing and technology costs related to HBO Now, HBO’s stand-alone streaming service."

Turner revenue dropped 2 percent to $2.4 billion due to declines in content and other revenue, a slight subscription decline and a 1 percent drop in advertising revenue. "Content and other revenues decreased due to lower subscription video-on-demand revenues," TW said. "The decline in subscription revenues was due to the impact of foreign exchange rates and a decline in domestic subscribers, partially offset by higher domestic rates and local currency growth at Turner’s international networks. Advertising revenues decreased due to the impact of foreign-exchange rates and the absence of NASCAR programming." U.S. advertising revenue was flat in the quarter.

Turner's adjusted operating income jumped 206 percent to $1.1 billion though "as the decline in revenues was more than offset by lower expenses, including decreased programming costs and lower restructuring and severance costs." Programming costs decreased 45 percent "primarily due to the absence of the prior year quarter’s $482 million of charges related to Turner’s decision to no longer air certain programming," the company said