Time Warner Q3 Adjusted EPS In-line; TW Cable Misses Estimates

Time Warner reported a 53% drop in net income to $1.09 billion, or $0.29/share, due to gains from asset sales and a tax benefit in the year earlier quarter. Sales rose 8.6% to $11.8B, beating analyst expectations of $11.4B. For the year, Time Warner said it continues to expect adjusted EPS of $1.07. By business segment, AOL's revenues fell 38% to $1.2B, hurt by a 56% ($820M) drop in subscription revenues. Advertising revenues rose 13% to $61M. Operating income was off 24% to $295M. Filmed Entertainment revenue climbed 33% to $3.2B, boosted by strong sales of the latest Harry Potter, Ocean's 13 and Rush Hour 3. Operating income surged 123% to $268M. Networks (Turner & HBO) revenues rose 6% to $2.6B, while operating income jumped 45% to $751M. Publishing (Time Inc.) revenues were essentially flat at $1.2B, with a 12% increase in operating income to $251M. Majority owned Time Warner Cable posted a 79% decline in Q3 profit due to the absence of discontinued operations. Adjusted EPS of $0.25 missed analyst estimates of $0.27/share. Revenue growth of 25% to $4B also came up short (est. $4.06B). Separately, AOL said it has agreed to acquire NY-based site and content targeted advertising firm Quigo for an undisclosed amount. Reuters reports a source said the deal is worth about $340M. Shares of Time Warner rose 2.9% to $18.33 on Tuesday and were slightly lower in very thin pre-market activity. Time Warner Cable gained 0.7% to $27.55 on Tuesday.

Sources: Press release I, II, III, Bloomberg, MarketWatch I, II, Reuters
Commentary: Bewkes Named Top Exec at Time Warner • AOL to Scrap 20% of Work Force • Time Warner Mulls Deal That Would Translate Into Over $3 Billion From Cable Unit
Stocks to watch: TWX, TWC. Competitors: VIA, CBS, NWS, DIS, GE, CMCSA. ETFs: HHH, PBS, XLY

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