Time Warner Inc. (TWX), the diversified media conglomerate, recently posted first-quarter 2011 results.
Street analysts had nearly a week to ponder on the news. In the subsequent paragraphs, we cover the recent earnings announcement, analysts’ estimate revisions as well as the Zacks Rank and long-term recommendation for the stock.
Earnings Report Review
Time Warner’s quarterly earnings of 58 cents a share came a penny ahead of the Zacks Consensus Estimate but dropped 4.9% from 61 cents earned in the prior-year quarter while bringing the shares down by 2.7% to $36.73 in pre-market trading.
On a reported basis, including one-time items, earnings came in at 59 cents a share, down 4.8% from 62 cents delivered in the year-ago quarter. However, Time Warner reaffirmed its fiscal 2011 earnings growth in low teens.
Time Warner’s total revenue in the quarter grew 6% to $6,683 million from the prior year-quarter on the heels of higher advertising revenue at its cable TV networks, and handily beating the Zacks Consensus Estimate of $6,451 million. Adjusted operating income during the quarter fell 10% to reach $1,275 million, whereas operating margin came in at 19% compared with 22% in the year-ago quarter.
(Read our full coverage on this earnings report:Time Warner a Penny Ahead)
Agreement of Estimate Revisions
Clearly, a mixed sentiment is palpable among analysts, following the earnings release. In the last 7 days, 10 out of the 25 analysts covering the stock decreased their estimates while none increased their estimates for the second quarter of 2011. For third-quarter 2011, 9 analysts revised their estimates in the upward direction, while none of the analysts chopped their estimates in the last 7 days.
Of the total analysts, 5 analysts have increased their estimates in the last 7 days while 4 lowered the estimates for fiscal 2011. For fiscal 2012, 9 analysts have increased their estimates in the last 7 days while none of them lowered their projection.
Magnitude of Estimate Revisions
In the last 7 days, the Zacks Consensus Estimate for fiscal 2011 went up by a penny to $2.75, and for fiscal 2012, the Estimate inched up by 2 cents to $3.19.
For the second-quarter 2011, the Zacks Consensus Estimate went down by 3 cents, while for the third-quarter 2011, it inched up by a penny.
The current Zacks Consensus for second-quarter 2011 is pegged from a low of 54 cents to a high of 63 cents. For fiscal 2011, the estimates range from $2.61 to $2.88.
Our Take
Based in New York, Time Warner aims to gain competitive advantage from opportunities for constructive collaboration. The company is the only vertically integrated media conglomerate with a material online presence. In addition, the company has the largest collection of content and distribution assets in the industry.
Time Warner’s significant international presence has helped to broaden its client base and product portfolio. The company operates in the United Kingdom, Germany, Canada, France, Japanand other countries apart from the United States. We believe that its strong international exposure will drive growth in the coming quarters.
However, the company derives substantial revenue from advertising, which in turn, depends upon the health of the economy. During recession, it has been seen that the demand for advertising dropped. Publishing companies have been grappling with the slump in print advertising demand, with advertisers migrating to the Internet driven by increasing online readership and lower ad prices online than print.
Currently, we have a long-term Neutral’ rating on the stock. Moreover, Time Warner, which competes with News Corporation (NWSA)and Walt Disney Company (DIS), holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ recommendation, and corroborates with our long-term view.
About Earnings Estimate Scorecard
Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/
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