Time Warner Inc. (TWX) posted fourth-quarter 2013 earnings of $1.17 per share that surpassed the Zacks Consensus Estimate by a couple of cents and came a penny ahead of the prior-year quarter, reflecting strength across Turner, Home Box Office (HBO) and Warner Bros. coupled with lower shares outstanding.
However, including one-time items, quarterly earnings came in at $1.06 per share, down 7.8% from $1.15 earned in the year-ago quarter.
This Zacks Rank #3 (Hold) stock now anticipates low double-digit growth in earnings per share for 2014, after taking into account the divestiture of Time Inc., which is expected to conclude in the second quarter of 2014.
Time Warner’s total revenue of $8,565 million jumped 5% year-over-year, and surpassed the Zacks Consensus Estimate of $8,382 million. The company’s investments in content and technology in the recent years have boded well.
Adjusted operating income declined 2% to reach $1,942 million, whereas adjusted operating margin contracted 160 basis points to 22.7%.
In a strategic move to unlock the value of its core business activities, Time Warner decided to go ahead with its plan to spin off Time Inc. magazine into a separate, publicly traded company. The move to shed Time Inc. followed the negotiation between Time Warner and Meredith Corp. (MDP) to create a magazine based company, which eventually did not materialize. Excluding Time Inc., revenue grew 6%, while adjusted operating income edged down 1%.
The decision would facilitate Time Warner to concentrate purely on television networks and film and TV production businesses. The decision would be accretive to the shareholders of Time Warner in the same fashion, when this diversified media conglomerate divested Time Warner Cable Inc. (TWC) and AOL Inc. (AOL) into independent companies.
Segment Details
Turner division’s revenue rose 3% to $2,548 million, driven by growth of 6% in subscription revenue and 1% in advertising revenue. Adjusted operating income for the segment dropped 3% to $879 million attributable to higher programming and marketing costs.
Higher subscription revenue was primarily attributed to rise in domestic rates and international growth. Advertising revenue gained due to growth witnessed at Turner’s domestic entertainment networks on account of rise in pricing and robust demand, partly offset by decline witnessed across domestic news networks.
Time Warner’s HBO segment revenue grew 6% to $1,260 million driven by growth of 8% in subscription revenue, partly offset by 9% decline in Content revenue. Higher subscription revenue was primarily attributed rise in domestic rates and the merger of HBO Asia and HBO Nordic. On the contrary, Content revenue fell on account of fall in home video revenue, partially offset by increase in international licensing revenue.
Adjusted operating income for the division tumbled 4% to $414 million principally attributable rise in expenses, primarily higher programming costs.
Warner Bros. revenue jumped 7% to $3,996 million resulting from sturdy theatrical and videogames slates, partly offset by decrease in television licensing revenue and fall in physical home video revenue. Adjusted operating income for the division rose 4% to $576 million on account of increased revenue, partly offset by rise in print and advertising costs.
Time Inc. revenue remained almost flat at $966 million due to 6% decline in Subscription revenue, offset by 2% jump in advertising revenue and 6% increase in Other revenue. The segment adjusted operating income plunged 14% to $173 million.
Other Financial Aspects
Time Warner ended the quarter with cash and cash equivalents of $1,862 million, long-term debt of $20,099 million and shareholders’ equity of $29,904 million.
During the quarter, Time Warner incurred capital expenditures of $287 million and generated free cash flow of $628 million. From Jan 1, 2013 through Jan 31, 2014, the company bought back about 64 million shares, aggregating approximately $3.9 billion. The company’s board in Jan 2014 authorized a share repurchase program of $5 billion. The company also hiked its quarterly dividend by 10% to 31.75 cents.
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