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Time Warner Beats on Bottom Line

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Time Warner Inc. (TWX - Free Report) posted fourth-quarter 2012 adjusted earnings of $1.17 per share that surpassed the Zacks Consensus Estimate of $1.10 and surged approximately 24% from 94 cents earned in the prior-year quarter due to strength witnessed across Networks segments and lower shares outstanding.

However, including one-time items, quarterly earnings came in at $1.21 per share, up 59% from the year-ago quarter.

This Zacks Rank #2 (Buy) stock now projects low double-digit growth rate in earnings per share for 2013. The current Zacks Consensus Estimate for 2013 is $3.64, reflecting an increase of 11% year-over-year. The company’s investments in content and technology in the recent years have boded well.

Time Warner’s total revenue in the quarter slipped marginally by 0.4% to $8,164 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 $8,246 million.

Adjusted operating income surged 16% to reach $1,980 million, whereas adjusted operating margin expanded 350 basis points to 24.3%.

Recently, The Walt Disney Company (DIS - Free Report) , one of Time Warner's competitors, posted first-quarter fiscal 2013 earnings of 79 cents a share that surpassed the Zacks Consensus Estimate by a couple of cents but inched down 1.3% from the comparable year-ago quarter.

Segment Details

Networks division’s revenue, which includes Turner Broadcasting and HBO, rose 5% to $3,665 million, driven by growth of 7% in subscription revenue and 3% in advertising revenue, partly offset by a decline of 9% in content revenue. Adjusted operating income for the segment increased 17% to $1,336 million attributable to growth in revenue and fall in expenses, including reduced programming costs.

Higher subscription revenue was primarily attributed to a rise in domestic rates and to some extent growth in domestic subscribers at HBO and internationally.

Advertising revenue gained due to growth witnessed at Turner’s domestic entertainment networks on account of rise in pricing, increase in NBA games count and higher ratings at CNN resulting from presidential election, partially offset by sluggishness experienced at Turner’s international networks mainly due to the adverse impact of foreign currency translation and cease of Turner’s general entertainment network, Imagine, in India and shutdown of TNT television operations in Turkey.

Time Warner’s Film and TV Entertainment segment revenue dipped 4% to $3,723 million due difficult year-over-year comparison as the year-ago period benefited from the home entertainment release of Harry Potter and the Deathly Hallows: Part 2 and the release of videogame of Batman: Arkham City, partially offset worldwide theatrical performance of The Hobbit: An Unexpected Journey and Argo.

Adjusted operating income for the division, which comprises Warner Brothers, soared 28% to $555 million principally due to the performance and timing of theatrical releases, reduced print and advertising costs, and television product mix. This was partly offset by decrease in home entertainment and videogames revenues.

Publishing revenue fell 7% to $967 million reflecting a 4% decline in advertising revenue and 39% drop in other revenues. Subscription revenue remained even with the prior-year quarter. Adjusted operating income fell 10% to $201 million from the prior-year quarter.

Other Financial Aspects

Time Warner ended the quarter with cash and cash equivalents of $2,841 million, long-term debt of $19,122 million and shareholders’ equity of $29,878 million.

During the quarter, Time Warner incurred capital expenditures of $217 million and generated free cash flow of $990 million. The company’s Board on Feb 5, 2013, hiked its quarterly dividend by 11% to 28.75 cents a share. The increased dividend will paid on Mar 15, 2013 to shareholders of record as of Feb 28, 2013.

From Jan 1, 2012 through Feb 1, 2013, Time Warner bought back 84 million shares, aggregating $3.5 billion. The company’s Board of Directors authorized a share buyback plan of $4 billion in Jan 2013, overriding the previous authorization.

Other Stocks to Consider

Apart from Time Warner, other media conglomerates worth considering are CBS Corporation (CBS - Free Report) and Viacom, Inc. (VIAB - Free Report) both of which hold the Zacks Rank #3 (Hold).

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