Time Warner Inc. (TWX), the diversified media conglomerate, recently posted first-quarter 2011 results. The 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 sending 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 the 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 beat 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.
Segment Details
Networks division’s revenue, which includes Turner Broadcasting and HBO, climbed 18% to $3,496 million, driven by growth of 9% in subscription revenue, 31% in advertising revenue and 48% in content revenue. Adjusted operating income for the segment advanced 2% to $1,168 million attributable to increased revenue, partially offset by rise in programming costs.
Time Warner’s Filmed Entertainment segment revenue dropped 3% to $2,604 million due to tough year-over-year theatrical and home video release comparison. Adjusted operating income for the division, which comprises Warner Brothers, was halved to $155 million as increased contribution from television were more than offset by lower contribution from theatrical release.
Publishing revenue remained flat at $798 million due to 5% fall in subscription revenue, offset by 18% jump in other revenue. Advertising revenue also was flat in the quarter. However, the segment’s operating income soared 26% to $63 million from the prior-year quarter, principally due to surge in advertising revenue at higher-margin domestic print magazine and reduced expenses, partially offset by increase in restructuring and severance costs.
Other Financial Discussions
Time Warner ended the quarter with cash and cash equivalents of $3,029 million, total long-term debt of $16,563 million, reflecting debt-to-capitalization ratio of approximately 33.9%, and shareholders’ equity of $32,237 million, excluding non-controlling interest of $4 million.
During the quarter, Time Warner generated free cash flow of $693 million and incurred capital expenditures of $152 million.
During the quarter, the company generated $825 million of cash from operations and received $22 million from borrowings. Time Warner also utilized $21 million of cash towards debt repayment, $959 million towards share repurchase, and $261 million towards dividend payment.
Year-to-date through April 29, 2011, Time Warner has bought back 37 million shares, aggregating $1.3 billion. The company in January 2011 had increased its share repurchase authorization to $5 billion from $1 billion remaining 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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