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Time Warner Earnings Beat Estimate

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Time Warner Inc. posted third-quarter 2013 earnings of $1.01 per share that surpassed the Zacks Consensus Estimate of 89 cents and surged approximately 20% from 84 cents earned in the prior-year quarter due to strength witnessed across Networks segment and lower shares outstanding.

However, including one-time items, quarterly earnings came in at $1.26 per share, up substantially from 84 cents earned in the year-ago quarter.

This Zacks Rank #3 (Hold) stock continues to anticipate mid-teens growth in earnings per share for 2013. The current Zacks Consensus Estimate for 2013 is $3.74, reflecting an increase of about 15% year-over-year. The company’s investments in content and technology in the recent years have boded well.

Time Warner’s total revenue of $6,856 million remained almost flat with the prior year-quarter, but fell short of the Zacks Consensus Estimate of $7,001 million.

Adjusted operating income increased 8% to reach $1,705 million, whereas adjusted operating margin expanded 180 basis points to 24.9%.

In a strategic move to unlock the value of its core business activities, Time Warner decided to go ahead with its plan to spin off Time Inc. magazine into a separate, publicly traded company. The move to shed Time Inc. followed the negotiation between Time Warner and Meredith Corporation (MDP - Free Report) to create a magazine based company, which eventually did not materialize.

The decision would facilitate Time Warner to concentrate purely on television networks and film and TV production businesses. The decision would be accretive to the shareholders of Time Warner in the same fashion, when this diversified media conglomerate divested Time Warner Cable Inc. and AOL Inc. into independent companies.

Segment Details

Networks division’s revenue, which includes Turner Broadcasting and HBO, rose 5% to $3,521 million, driven by growth of 4% in subscription revenue and 11% in advertising revenue. Adjusted operating income for the segment increased 12% to $1,368 million attributable to growth in revenue, partially mitigated higher restructuring and severance costs.

Higher subscription revenue was primarily attributed to rise in domestic rates and international growth. Advertising revenue gained due to growth witnessed at Turner’s domestic entertainment networks on account of rise in pricing and robust demand and contribution from Turner’s international networks.

Time Warner’s Film and TV Entertainment segment revenue declined 7% to $2,694 million due to sturdy theatrical performance of The Dark Knight Rises in the year-ago quarter and fall in television revenue from theatrical product, partly offset by rise in television licensing revenue.

Adjusted operating income for the division, which comprises Warner Brothers, dropped 8% to $302 million principally attributable to decrease in revenue, partly offset by reduced film costs.

Publishing revenue fell 2% to $818 million due to 4% decline in Subscription revenue and 2% fall in advertising revenue. The segment adjusted operating income came in at $116 million, reflecting decline of 8% due to fall in revenue, partially offset by reduced expenses.

Other Financial Aspects

Time Warner ended the quarter with cash and cash equivalents of $1,567 million, long-term debt of $19,145 million and total equity of $29,930 million.

During the quarter, Time Warner incurred capital expenditures of $131 million and generated free cash flow of $1,085 million. From Jan 1, 2013 through Nov 1, 2013, Time Warner bought back about 50 million shares, aggregating approximately $3 billion under its share repurchase program of $4 billion announced in Jan 2013, overriding the previous authorization.

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