Time Warner Third-Quarter Earnings Exceed Expectations

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The entertainment conglomerate, led by CEO Jeff Bewkes, also raised its full-year growth forecast

Time Warner, led by CEO Jeff Bewkes, on Wednesday reported third-quarter earnings that exceeded Wall Street expectations despite a weaker theatrical release slate than in the year-ago period and weak cable TV advertising trends.

It also raised its full-year earnings outlook, now forecasting high teen percentage growth, up from the low teen gains predicted previously.

Restructuring and severance costs related to layoffs across the company also featured in the company's financials as did write-downs at Turner for acquired series that weren't bringing the hoped-for ratings performance. The company later mentioned The Mentalist and Tyler Perry's House of Pain as being among those shows.

The entertainment conglomerate's stock was up more than 2 percent in pre-market trading as investors seemed encouraged by the better-than-expected results and forecast.

Time Warner reported third-quarter adjusted earnings of 97 cents per share excluding certain items, or $1.22 otherwise, up from 91 cents in the year-ago period. Adjusted $1.22 figure included a net tax benefit of $639 million primarily related to the reversal of certain tax reserves resulting from an audit settlement. Excluding the tax issue along with programming charges at Turner and restructuring and severance charges, the company posted the 97 cents figure.

Adjusted operating profit decreased 38 percent to $993 million primarily due to charges at Turner related to its decision to no longer air certain programming and restructuring and severance charges across all Time Warner units amid recent and ongoing layoffs. Quarterly revenue rose 3 percent to $6.24 billion. Analysts' average forecast was for earnings of 94 cents per share on revenue of $6.16 billion.

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The earnings report was the company's first since a well-received investor day last month, during which Bewkes said the conglomerate has "more than sufficient scale" and the company would double its earnings over the coming years.

"We had another good quarter," said Bewkes. "As we discussed at our investor event last month, we’ve refocused the company over the past few years to aggressively pursue the huge global opportunities we see in video content. And once again, we are seeing the benefits of our increased investments in great content and storytelling."

He added: "In the quarter, both Turner and HBO had double-digit increases in subscription revenues, reflecting the growing strength and appeal of their programming. HBO received 19 Primetime Emmy Awards, the most of any network for the 13th straight year, including five Emmys for newcomer True Detective. At Turner, TNT ranked as ad-supported cable's #1 primetime network for the second consecutive quarter, TBS was the #2 ad-supported cable network in primetime among adults 18-49 and 25-54, and Adult Swim again shined as ad-supported cable's #1 total day network among its key adult demos."

Bewkes also lauded the company's role in the fall TV season thanks to its studio. "This fall, Warner Bros. is once again the number-one producer for broadcast television, including a strong slate of new shows," he said, lauding the performance of Gotham as the number-two new broadcast show among adults 18-49 and The Flash, which had the most-watched telecast ever on The CW.

Warner Bros. revenue rose 3 percent to $2.8 billion, mainly due to growth in subscription VOD revenue for TV shows, higher licensing of theatrical product, growth in TV production and thanks to a patent license and settlement agreement. But theatrical releases, such as Tammy and Into the Storm, performed weaker than last year's films, which included Pacific Rim, The Conjuring and We’re the Millers.

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Warner's adjusted operating profit fell 20 percent to $241 million due to higher restructuring and severance costs, increased film costs for TV product and a value added tax accrual. The latest quarter included $45 million of restructuring and severance costs.

At TW's Turner cable networks unit, third-quarter revenue rose 5 percent to $2.4 billion driven by 10 percent growth in subscription revenue and 17 percent growth in content revenue, offset partially by a 2 percent drop in advertising revenue due to declines at international networks. Ad revenue at Turner’s U.S. networks was "essentially flat," the company said.

Turner's adjusted operating profit declined 64 percent to $350 million though due to higher programming costs and increased restructuring and severance costs. Programming costs grew 84 percent due to $482 million in charges related to Turner’s decision to no longer air certain programming. The latest quarter also included $199 million in restructuring and severance costs.

HBO revenues grew 10 percent to $1.3 billion driven by a 10 percent gain in subscription revenue, due to higher domestic rates and subscribers as well as the consolidation of HBO Asia and HBO South Asia, and 7 percent growth in content revenue, which was due to increased home video revenue.

HBO's adjusted operating profit fell 4 percent, though, to $380 million due to higher programming and distribution costs, as well as increased restructuring and severance costs. Programming costs grew 16 percent due to increased expenses for original and acquired programming, as well as the consolidation of HBO Asia. The latest quarter included $48 million in restructuring and severance costs.

Email: Georg.Szalai@THR.com
Twitter: @georgszalai