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Time Warner (TWX) Beats on Q1 Earnings, Retains Outlook

Time Warner Inc. TWX posted first-quarter 2016 adjusted earnings of $1.49 per share that surpassed the Zacks Consensus Estimate of $1.29, and rose 25% year over year. Higher adjusted operating income and share repurchase activity provided cushion to the bottom line. The company's investments in video content and technology continued to show results.

 

Management continues to project adjusted earnings per share for 2016 between $5.30 and $5.40. The current Zacks Consensus Estimate for 2016 is $5.35.          

Including one-time items, earnings per share from continuing operations came in at $1.46 per share, up from $1.10 reported in the prior-year quarter.

Time Warner's total revenue of $7,308 million climbed 3% year over year on account of an increase in revenue at Home Box Office (“HBO”) and Turner, partly offset by a revenue decline witnessed at Warner Bros. Foreign currency headwinds hurt total revenue by $115 million. Total revenue also came ahead of the Zacks Consensus Estimate of $7,241 million.

Adjusted operating income came in at $2,012 million, up 11% from the year-ago quarter, reflecting growth across all operating divisions. Adjusted operating margin expanded 200 basis points to 27.5%.

Time Warner has taken restructuring aggressively. The company is now focusing on original programming, containing costs and increasing investments in key areas to enhance profitability. In a strategic move to unlock the value of its core business activities, Time Warner spun off its magazine division into a separate, publicly traded company, Time Inc. TIME.

Segment Details

Turner division's revenue rose 7% to $2,906 million due to 5% growth in advertising revenue and an 11% increase in subscription revenue. Higher advertising revenue reflected domestic growth and local currency growth at Turner’s international networks, partly offset by unfavorable foreign exchange rates. Domestic advertising revenue rose on account of growth at Turner’s news business. Subscription revenue grew on account of a rise in domestic rates and local currency growth at Turner’s international networks, partly offset by foreign currency headwinds and a fall in domestic subscribers.

Adjusted operating income for the segment jumped 10% to $1,239 million from the year-ago quarter due to an increase in revenue, partly offset by higher expenses.

Time Warner's HBO segment revenue climbed 8% to $1,506 million, driven by growth of 5% in subscription revenue and 23% in content and other revenue. Higher subscription revenues were primarily attributed to a rise in domestic rates and subscribers. On the other hand, content and other revenues increased due to a rise in international licensing revenue, partly offset by a fall in home entertainment revenue.

Adjusted operating income for the division increased 6% to $486 million as higher revenue offset increased expenses. The increase in expenses was primarily attributed to a rise in programming expenses as well as increased marketing and technology costs associated with HBO NOW, HBO’s over-the-top service.

Warner Bros. revenues declined 3% to $3,109 million on account of a fall in theatrical revenue, partly offset by higher television and videogames revenues. The theatrical revenue fell as the year-ago quarter gained from American Sniper and The Hobbit: The Battle of the Five Armies. On the contrary, the quarter under review witnessed late release of Batman v Superman: Dawn of Justice.

Adjusted operating income for the division surged 29% to $426 million.

Other Financial Aspects

Time Warner ended the quarter with cash and equivalents of $1,540 million, long-term debt of $23,622 million, and shareholders' equity of $23,843 million, excluding non-controlling interest of $1 million.

During the quarter, Time Warner incurred capital expenditures of $75 million and generated free cash flow of $714 million. From Jan 1, 2016 through Apr 29, 2016, the company bought back about 13 million shares, aggregating approximately $946 million. As of Apr 29, 2016, the company still had approximately $4.1 billion remaining under its share buyback program.

Time Warner, which shares space with Twenty-First Century Fox, Inc. FOXA and The Walt Disney Company DIS, currently carries a Zacks Rank #3 (Hold).

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