Time Warner Inc. (TWX), the diversified media conglomerate, recently posted better-than-expected second-quarter 2011 results. The quarterly earnings of 60 cents a share beat the Zacks Consensus Estimate of 56 cents, and jumped 20% from 50 cents earned in the prior-year quarter on the heels of higher advertising demand.
On a reported basis, including one-time items, earnings came in at 59 cents a share, up 20.4% from 49 cents delivered in the year-ago quarter. Time Warner now projects, at least low teens growth in fiscal 2011 earnings per share. Earlier, the company had forecasted an increase of low teens.
Time Warner’s total revenue in the quarter grew 10% to $7,030 million from the prior year-quarter registering growth across all segments, and handily beat the Zacks Consensus Estimate of $6,788 million. Adjusted operating income during the quarter climbed 6% to reach $1,279 million, whereas operating margin came in at 18% compared with 19% in the year-ago quarter.
The company has been expanding its digital presence to facilitate consumers to enjoy content on more platforms and devices. Time Warner enhanced the reach of HBO GO streaming service to mobile devices and acquired Flixster, a movie search application on smartphones and mobile devices.
Segment Details
Networks division’s revenue, which includes Turner Broadcasting and HBO, rose 9% to $3,451 million, driven by growth of 7% in subscription revenue, 11% in advertising revenue and 18% in content revenue. Adjusted operating income for the segment advanced 5% to $1,026 million attributable to increased revenue, partially offset by the rise in programming and marketing costs.
Time Warner’s Filmed Entertainment segment revenue surged 13% to $2,847 million attributable to the increase in video game and home entertainment revenues. Adjusted operating income for the division, which comprises Warner Brothers, fell by 6% to $163 million due to higher pre-release print and advertising expenses, rise in overhead costs and higher theatrical film valuation adjustments.
Publishing revenue climbed 3% to $946 million reflecting a 2% increase in subscription revenues, 1% growth in advertising revenue and a 56% jump in content revenue. The segment’s operating income jumped 10% to $169 million from the prior-year quarter, principally due to increase in revenue, partly offset by a rise in expenses, which includes higher paper costs.
Other Financial Discussions
Time Warner ended the quarter with cash and cash equivalents of $3,520 million, long-term debt of $18,512 million, reflecting debt-to-capitalization ratio of approximately 36.9%, and shareholders’ equity of $31,716 million, excluding a non-controlling interest of $3 million.
During the quarter, Time Warner generated negative free cashflows of $138 million and incurred capital expenditures of $185 million.
Year-to-date through July 29, 2011, Time Warner has bought back 65 million shares, aggregating $2.3 billion. The company in January 2011 had increased its share repurchase authorization to $5 billion from $1 billion as of December 31, 2010.
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 our long-term view.
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