Time Warner Inc. is scheduled to report first-quarter 2018 results on Apr 26.
The media and entertainment company’s planned takeover by AT&T in a deal worth $85.4 billion hit roadblock after Department of Justice (DOJ) raised antitrust concerns over the proposed merger.
Notably, Time Warner has outperformed the Zacks Consensus Estimate in the trailing four quarters by an average of 13.3%. In the preceding quarter, the company delivered a positive earnings surprise of 11.1%.
Investors are keeping their fingers crossed and hoping that Time Warner outpaces earnings estimate even this time. The Zacks Consensus Estimate for first-quarter earnings and revenues are currently pegged at $1.76 and $7.95 billion, reflecting year-over-year growth of 6% and 2.8%, respectively.
Let’s delve deeper and find out the factors likely to impact results this quarter.
Factors to Consider
Time Warner has been restructuring aggressively. The company is now focusing on original programming, containing costs and increasing investments in key areas to enhance profitability. Additionally, the company has been expanding digital presence to enable consumers to access content from several platforms and devices.
The company’s investments in video content and technology are expected to boost top-line growth. The company has witnessed robust subscription revenue growth at Home Box Office (HBO) and Turner.
In the last quarter, HBO’s subscription revenues increased 16% driven by a rise in domestic rates and subscribers, and international growth. Moreover, Turner’s subscription revenues increased 14% due to rise in domestic rates and growth at Turner’s international networks.
However, projections for HBO and Turner are not positive for the first quarter.
Management expects HBO’s subscription revenues in the first quarter to improve at a rate similar to the expectation for the full year (more than 6% year over year). The sequential decline can primarily be attributed to timing for recognizing certain revenues under new revenue recognition accounting guidance adopted in 2018.
Moreover, Time Warner expects HBO operating income to decline in the to-be-reported quarter.
For Turner, management expects advertising revenues to increase in the high-single to low-double digits rate in first-quarter 2018. This is expected to be driven by positive impact from airing the Final Four college basketball games of the NCAA Tournament.
However, operating income is anticipated to decline in the first quarter due to rise in expenses on account of the airing of the NCAA Tournament Final Four games and the timing of original series.
Further, Warner Bros. operating income is expected to decline by a double-digit percentage in the going-to-be-reported quarter.
What Our Model Says
According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) along with a positive Earnings ESP has a good chance of beating estimates. The Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.
Time Warner has a Zacks Rank #2 (Buy) and an Earnings ESP of -2.84%, which indicates an unlikely positive surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Stocks to Consider
Here are few stocks you may consider as our proven model shows that these have the right combination of elements to post an earnings beat this quarter.
Western Digital (WDC - Free Report) has an Earnings ESP of +2.30% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Paycom Software (PAYC - Free Report) has an Earnings ESP of +0.33% and a Zacks Rank #1.
Seagate (STX - Free Report) has an Earnings ESP of +6.69% and a Zacks Rank #2.
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