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Time Warner's Earnings Beats Estimate

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Time Warner Inc. (TWX - Free Report) posted first-quarter 2013 adjusted earnings of 82 cents a share that surpassed the Zacks Consensus Estimate of 75 cents and surged approximately 22% from 67 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 75 cents a share, up 27% from the year-ago quarter.

This Zacks Rank #3 (Hold) stock continue to project low double-digit growth rate in earnings per share for 2013. The current Zacks Consensus Estimate for 2013 is $3.68, reflecting an increase of 12% 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 0.6% to $6,939 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 $7,162 million.

Adjusted operating income increased 7% to reach $1,440 million, whereas adjusted operating margin expanded 140 basis points to 20.8%.

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 3% to $3,695 million, driven by growth of 5% in subscription revenue, partially offset by declines of 1% in advertising revenue and 4% in content revenue. Adjusted operating income for the segment increased 7% to $1,288 million attributable to growth in revenue and flat programming costs.

Higher subscription revenue was primarily attributed to rise in domestic rates, strength seen across HBO and international growth. Advertising revenue gained due to growth witnessed at Turner’s domestic entertainment networks on account of rise in pricing, offset by the timing of the 2013 NCAA tournament and fall in news networks due to 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 $2,681 million due to lower theatrical performance and decreased television licensing revenue. These were partially offset by rise in home video revenue from the sturdy performance of The Hobbit: An Unexpected Journey and Argo.

Adjusted operating income for the division, which comprises Warner Brothers, soared 23% to $265 million principally attributable to higher contributions from The Hobbit: An Unexpected Journey and fall in print and advertising expenses. However, revenue decline acted as a deterrent.

Publishing revenue fell 5% to $737 million due to 11% decline in Subscription revenue and 10% in other revenue, partially offset by 2% growth in advertising revenue. The segment registered an adjusted operating loss of $9 million compared with adjusted operating income of $39 million.

Other Financial Aspects

Time Warner ended the quarter with cash and cash equivalents of $2,493 million, long-term debt of $19,125 million and shareholders’ equity of $29,991 million.

During the quarter, Time Warner incurred capital expenditures of $85 million and generated free cash flow of $935 million. From Jan 1, 2013 through Apr 26, 2013, Time Warner bought back 16 million shares, aggregating $868 million under its share repurchase program of $4 billion announced in Jan 2013, overriding the previous authorization.

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