Turner Networks And Studio Operations Will Drive Time Warner’s Q1 Earnings

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Time Warner (NYSE:TWX) will report its Q1 2015 earnings on April 29th. CNN posted double-digit ratings growth in the first quarter while other Turner networks also saw ratings momentum with NCAA Tournament coverage. This should aid Time Warner’s Q1 earnings. Furthermore, subscription revenues at Turner networks as well as HBO have been on an uptrend in the recent past and we expect it to continue to grow in the near term as the networks pass on some of the increased costs to the distributors. However, rising programming costs across Time Warner’s media networks still remains a concern. Looking at Warner Bros., the studio surely benefited from the wide success of American Sniper, which should be reflected in the quarterly results. Overall, we expect the company to post continued earnings growth led by its media networks and studio business.

We currently estimate revenues of about $29 billion for Time Warner in 2015 with EPS of $4.48, which is somewhat lower than the market consensus of $4.66, compiled by Thomson Reuters. We currently have a $91 price estimate for Time Warner, which we will update after the first quarter earnings announcement.

See our complete analysis for Time Warner

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Ratings Growth At Turner Networks Will Aid Time Warner’s Earnings

CNN saw solid ratings growth in Q1 with a 15% jump in weeknight primetime and 20% jump in total day viewers. [1] Other Turner networks also benefited from the NCAA Tournament, which saw an 8% uptick in overall viewership as compared to the prior season. [2]. The benefits of these ratings growth will be visible during the March quarter earnings. We expect a slight uptick in advertising revenues and continued growth in subscription revenues led by higher rates as well as higher contribution from international markets. We currently estimate revenues of around $9.35 billion for Turner networks in 2015 and an estimated EBITDA margin of 36% will translate into EBITDA of $3.33 billion, representing more than 40% of the company-wide EBITDA. It must be noted that these figures do not include content and other revenues, which we forecast separately.

Warner Bros. Will Benefit From Wide Success of American Sniper

Warner Bros. raked $585 million at the U.S. box office during the March quarter primarily led by the success of American Sniper and continued benefits of Hobbit: The Battle of Five Armies. American Sniper has so far grossed close to $550 million at the global box-office while its production budget was $59 million. [3] The latest Hobbit movie has so far grossed close to a billion dollars at the global box-office. The studio’s performance has been better in Q1 2015 as compared to the prior year quarter and this should aid the overall earnings growth. We currently estimate the studio’s theatrical revenues to be around $1.90 billion and an estimated EBITDA margins of 16% will translate into EBITDA of over $315 million, representing a mere 4% of the company wide EBITDA for 2015. However, the contribution will be much higher at around 25% if we account for the movie and TV show production, licensing and electronic sales of the studio.

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Notes:
  1. IN Q1, CNN POSTS DOUBLE-DIGIT GAINS VS. A YEAR AGO; MSNBC SHEDS ALMOST HALF ITS AUDIENCE, CNN, Mar 31, 2015 []
  2. Weekly, Monthly & Quarterly Ratings Notes for Adult Swim, Cartoon Network, TBS, TNT & NBA TV: ‘Cougar Town’, ‘The Eric Andre Show’, ‘Rizzoli & Isles’ & More, Zap2it, Apr 15, 2015 []
  3. American Sniper, Box Office Mojo, As of Apr 26, 2015 []