Turner Networks Boosts Time Warner’s Q1 Earnings

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Time Warner

Time Warner (NYSE:TWX) recently reported its Q1 2015 earnings, which came out largely on expected lines. While revenues grew 5% to $7.12 billion, adjusted earnings were up 23% to $1.19 per share. [1] Growth was largely led by Turner networks, which benefited from the NCAA coverage. HBO continued to see steady growth in subscription revenues while higher revenues at Warner Bros. were offset by unfavorable foreign exchange movements. Overall, the results were good across divisions and the company maintains its guidance of $4.60 to $4.70 earnings per share for 2015. [2] This is slightly higher than our current earnings estimate of $4.48 per share. We will soon revise our $93 price estimate for Time Warner to incorporate the recent quarterly earnings. We continue to believe that Time Warner will see healthy growth in the near term as well as in the long run primarily driven by its media networks.

See our complete analysis for Time Warner

Turner Networks Drive Time Warner’s Q1 Earnings

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While Turner networks saw revenue growth of 5% to $2.71 billion during the March quarter, its operating income surged 23% to $1.11 billion led by lower costs. Total expenses were down 7% due to lower SG&A and a 3% drop in programming costs. [1] Improved ratings at Turner networks aided the segment advertising income. CNN saw solid ratings growth in Q1 with a 15% jump in weeknight primetime and a 20% jump in total day viewers. [3] Other Turner networks also benefited from the NCAA Tournament, which saw an 8% uptick in overall viewership as compared to the prior season. [4] As a result, advertising revenues at Turner grew 4% to $1.18 billion for the quarter. Subscription revenues at Turner also grew 3% during the quarter. However, the strengthening dollar is likely to put pressure on subscription revenues in the near term.

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.

Higher Costs And Currency Headwinds Offset The Gains For Warner Bros.

Warner Bros. saw revenue growth of 4% to $3.2 billion during the first quarter. This can be attributed to the success of American Sniper and continued benefits from Hobbit: The Battle of Five Armies. American Sniper has grossed close to $550 million at the global box-office while its production budget was $59 million. However, the segment operating income declined 12% to $324 million led by higher costs and unfavorable foreign currency exchange. On a constant currency basis, operating income was up for the quarter. The company expects operating income to be lower in the second quarter as well. [2]

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. Time Warner’s SEC Filings [] []
  2. Time Warner (TWX) Jeffrey L. Bewkes on Q1 2015 Results – Earnings Call Transcript, Seeking Alpha, Apr 29, 2015 [] []
  3. IN Q1, CNN POSTS DOUBLE-DIGIT GAINS VS. A YEAR AGO; MSNBC SHEDS ALMOST HALF ITS AUDIENCE, CNN, Mar 31, 2015 []
  4. 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 []