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Time Warner Inc. (TWX - Analyst Report), the diversified media conglomerate, posted third-quarter 2012 adjusted earnings of 86 cents a share, surpassing the Zacks Consensus Estimate of 82 cents and jumped approximately 8.9% from 79 cents earned in the prior-year quarter due to strength witnessed across Networks segments. However, including one-time items, quarterly earnings increased 10.3%.

Time Warner reiterated its low double-digit growth rate expectation for fiscal 2012 earnings per share. The current Zacks Consensus Estimate for fiscal 2012 is $3.21 per share, reflecting a growth of approximately 11% from fiscal 2011.

Time Warner’s total revenue in the quarter slipped 3% to $6,842 million from the prior year-quarter attributable to revenue declines across Film and TV Entertainment and Publishing units, partially offset by growth witnessed in Networks segment. The reported revenue also fell short of the Zacks Consensus Estimate of $6,900 million.

Adjusted operating income declined 1.4% to reach $1,582 million, whereas adjusted operating margin came in at 23.1% compared with 22.7% in the prior-year quarter.

Segment Details

Networks division’s revenue, which includes Turner Broadcasting and HBO, rose 4% to $3,339 million, driven by an increase of 7% in subscription revenue partially offset by a 1% decline in advertising revenue. Adjusted operating income for the segment increased 12% to $1,223 million attributable to growth in revenue.

Time Warner’s Film and TV Entertainment segment revenue dipped 12% to $2,897 million due difficult year over year comparison. Adjusted operating income for the division, which comprises Warner Brothers, plunged 38% to $330 million due to fall in revenue.

Publishing revenue fell 6% to $838 million reflecting a 5% decline in advertising revenue on account of sluggishmagazine advertising demand along with a 6% drop in subscription revenue on account of reduced newsstand revenue globally. Moreover, other revenues also declined 18%. Adjusted operating income inched up 2% to $126 million from the prior-year quarter, principally due to lower expenses.

Other Financial Aspects

Time Warner ended the quarter with cash and cash equivalents of $3,188 million, long-term debt of $19,122 million and shareholders’ equity of $30,019 million.

During the quarter, Time Warner incurred capital expenditures of $143 million and generated free cash flow of $1,431 million.

From January 1, 2012 through November 2, 2012, Time Warner bought back 59 million shares, aggregating $2.3 billion. The company’s board of directors had authorized a share buyback plan of $4 billion in January 2012.      

Recommendation

Currently, we have a long-term Neutral recommendation on the stock. Moreover, Time Warner, which competes with News Corporation (NWSA - Analyst Report) and Walt Disney Company (DIS - Analyst Report), holds a Zacks #3 Rank that translates into a short-term Hold rating, and correlates with our long-term view.

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