Time Warner Inc. TWX posted second-quarter 2015 adjusted earnings of $1.25 per share that surpassed the Zacks Consensus Estimate of $1.03, and surged 28% year over year on the back of strength witnessed across Turner and Warner Bros. Share repurchase activity also provided cushion to the stock. The company's investments in video content and technology continued to show results.
Management continues to expect adjusted earnings per share for 2015 between $4.60 and $4.70. The current Zacks Consensus Estimate for 2015 is $4.66 per share.
Including one-time items the quarterly earnings came in at $1.16 per share, substantially up from 95 cents in the prior-year quarter.
Time Warner's total revenue of $7,348 million grew 8% year over year and also came ahead of the Zacks Consensus Estimate of $6,872 million. Adjusted operating income increased 15% to reach $1,862 million, reflecting growth at Turner and Warner Bros., partially offset by decline witnessed across Home Box Office (“HBO”). Adjusted operating margin expanded 150 basis points to 25.3%.
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 revenues rose 3% to $2,827 million, driven by growth of 2% in subscription revenues and 48% in content and other revenues, partially offset by 1% decline in advertising revenues. Higher subscription revenues were primarily attributed to a rise in domestic rates and local currency growth at Turner's international networks, partly offset by unfavorable foreign exchange rates. Advertising revenues fell on account of adverse foreign exchange rates, partly offset by growth at Turner's domestic businesses and local currency growth at Turner's international networks. Content and other revenues benefited from the licensing of select Turner original programming to Hulu.
Adjusted operating income for the segment surged 20% to $1,130 million due to higher revenue and fall in expenses.
Time Warner's HBO segment revenues rose 1% to $1,438 million driven by growth of 4% in subscription revenues, partly offset by 7% fall in content and other revenues. Higher subscription revenues were primarily attributed to a rise in domestic rates. On the other hand, content and other revenues decreased on account of fall in home entertainment revenues.
Adjusted operating income for the division declined 8% to $508 million because of increased marketing and technology expenses due to the launch of HBO's stand-alone streaming service, HBO NOW.
Warner Bros. revenues jumped 15% to $3,298 million due to increased videogames and television licensing revenues, partly offset by fall in theatrical revenues and unfavorable foreign exchange rates. Higher revenues from videogames came in on account of the releases of Batman: Arkham Knight and Mortal Kombat X. On the other hand, television licensing revenues gained from the second-cycle syndication of The Big Bang Theory and the subscription video-on-demand licensing of Seinfeld.
Adjusted operating income for the division soared 46% to $344 million on the back of higher revenues, partly offset by associated film and print and advertising expenditures.
Other Financial Aspects
Time Warner ended the quarter with cash and equivalents of $3,122 million, long-term debt of $22,281 million and shareholders' equity of $24,025 million.
During the quarter, Time Warner incurred capital expenditures of $97 million and generated free cash flow of $732 million. From Jan 1, 2015 through Jul 31, 2015 the company bought back about 24 million shares, aggregating approximately $2 billion. As of Jul 31, the company still had about $2.5 billion remaining at its disposal.
Time Warner, which competes with Twenty-First Century Fox, Inc. FOXA and The Walt Disney Company DIS, currently carries a carries a Zacks Rank #3 (Hold).
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