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Time Warner Inc Earnings Jump 12% as "Wonder Woman" Lifts the Film Segment

With preparations for its AT&T (NYSE: T) merger proceeding as planned, Time Warner (NYSE: TWX) posted earnings results this week that showed healthy operating momentum. Overall, sales expanded and profitability ticked higher. Here's how the headline results compared to the prior-year period:

 Metric

Q2 2017

Q2 2016

Year-Over-Year Change

Revenue

$7.3 billion

$6.9 billion

5%

Net income

$1.06 billion

$951 million

12%

EPS

$1.34

$1.20

12%

Data source: Time Warner's financial filings.

What happened this quarter?

The company overcame a sharp drop in TV advertising revenue thanks to improved earnings from its HBO and Warner Bros. segments. Sales rose across its three main business units.

Image source: Warner Bros.

Highlights of the quarter included:

  • The Turner broadcasting segment crept higher by 3%, as an 8% drop in advertising revenue was offset by a 13% spike in subscription fees. Ad sales fell mainly because of a decline in sporting-event broadcasts this year compared to the prior-year period. Turner was also pinched by falling subscriber numbers in the U.S. market.
  • The HBO division posted an 8% subscription bounce as membership numbers rose in both the U.S. and international markets. Profitability improved in the segment, too, due to declines in content and programming costs.
  • A blockbuster performance at theaters for Wonder Woman helped push Warner Bros. revenue up 12%. The film has collected over $400 million so far to become the second-highest-grossing movie in the U.S. this year.
  • Operating cash flow reached $2.5 billion through the first half of the year -- up 25% year over year.

What management had to say

CEO Jeff Bewkes said the broad results met management's high expectations. "We're very pleased with our first-half results," he said in a press release, "which keep us on track to achieve our objectives for the year."

Bewkes credited a deep portfolio of content that has attracted critical praise in addition to healthy viewership. "Warner Bros. is the leading supplier of primetime series to the broadcast networks for the ninth straight season," he noted, and is also "home to the biggest cinematic hit of the summer so far with Wonder Woman."

Executives highlighted HBO's impressive run in collecting over 100 primetime Emmy nominations to lead all networks for yet another year. "These results and accolades reflect strong execution and the investments we've been making" in content, Bewkes explained.

Looking forward

Bewkes and his executive team affirmed their full-year outlook that calls for adjusted earnings to rise in the high single digits. Declining audience numbers will continue to push advertising revenue lower, they predict, but profits in that division should improve as expense growth moderates.

Image source: Getty Images.

Time Warner expects continued strong momentum at HBO as subscriber gains more than offset rising programming expenses. The Warner Bros division, meanwhile, should see much of its profit growth come in the fourth quarter when the company releases the highly anticipated Justice League film in addition to the video game Middle-Earth: Shadow of War.

In the meantime, executives still see their merger with AT&T closing by the end of this year -- assuming there aren't any surprise snags in the regulatory review.

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Demitrios Kalogeropoulos has no position in any stocks mentioned. The Motley Fool recommends Time Warner. The Motley Fool has a disclosure policy.