Time Warner Beats, Lifts Outlook

Nov. 3.10 | About: Time Warner (TWX)

Time Warner Inc. (TWX), the diversified large-cap media conglomerate, posted better-than-expected third-quarter 2010 results on the heels of increase in advertising and subscription revenues.

The quarterly earnings of 62 cents a share comfortably beat the Zacks Consensus Estimate of 53 cents, and rose 17% from the prior-year quarter. On a reported basis, including one-time items, earnings came in at 46 cents a share, down 16% from 55 cents delivered in the year-ago quarter.

Buoyed by the strong quarterly performance, Time Warner lifted its outlook for full-year 2010. The company now expects adjusted earnings to rise in the high 20% range from adjusted earnings of $1.83 per share in 2009, compared to its earlier prediction of at least 20% increase.

Following this, a positive sentiment may be palpable among the analysts covering the stock, and we could witness a rise in the Zacks Consensus Estimates in the coming days.

Meanwhile, Time Warner’s total revenue in the second quarter grew 2% to $6,377 million from the previous year-quarter, but fell short of the Zacks Consensus Revenue Estimate of $6,399 million. Adjusted operating income during the quarter logged a growth of 5% to $1,358 million.

Segment Details
Networks division’s revenue, which includes Turner Broadcasting and HBO, jumped 9% to $3,004 million, driven by 9% growth in subscription revenue, 10% growth in advertising revenue, and a 2% increase in content revenue. Adjusted operating income for the segment climbed 17% to $1,138 million.

Time Warner’s Filmed Entertainment segment remained flat at $2,776 million, as theatrical releases faced tough year-over-year comparisons. The division, which comprises Warner Brothers and its affiliates, hinted that adjusted operating income dropped 28% to $209 million.

Publishing revenue posted a marginal decline of 1% to $901 million as a 5% increase in advertising revenue was offset by declines of 12% in other revenue and 5% in subscription revenue. However, the segment’s operating profit surged 45% to $141 million from the prior-year quarter, primarily due to management’s cost containment initiatives and reduced pension expense.

Other Financial Discussions
Time Warner ended the quarter with cash and cash equivalents of $4,009 million, long-term debt of $16,523 million, reflecting debt-to-capitalization ratio of 33%, and shareholders’ equity of $33,014 million. During the quarter, the company generated free cash flow of $800 million and incurred capital expenditures of $131 million.

During the first-nine months of 2010, the company generated $2,319 million of cash from operations and received $5,220 million from borrowings. Time Warner also utilized $4,856 million of cash towards debt repayment, $1,516 million towards share buybacks, and $733 million towards dividend payments.

In this year, as on October 29, Time Warner has bought back approximately 54 million shares for about $1.7 billion, under its $3 billion share repurchase program.

Currently, we have a Neutral rating on Time Warner. The Zacks #3 Rank, which translates into a short-term Hold rating, correlates with our long-term recommendation.