What To Watch For In Time Warner’s Q1 Earnings

Time Warner Inc (NASDAQ: TWX) is scheduled to announce its fiscal first quarter results on Wednesday, May 3. The company had a strong fiscal 2016, as its earnings per share beat analyst estimates in all four quarters of the year. In Q4, the company’s revenue increased 11% year-over-year (y-o-y) to $7.9 billion, driven by growth in all divisions, particularly the company’s cable TV and film business. It also posted adjusted earnings of $1.25 per share, which was an 18% y-o-y increase.

On the AT&T (NYSE:T) and Time Warner merger, the odds appear to be increasingly favorable, with new FCC Chairman Ajit Pai indicating that the FCC does not expect to review the deal on account of a transaction structure which is likely to avoid the transfer of broadcast licenses. This means that AT&T should only require clearance from the Department of Justice, which is currently reviewing the deal. Accordingly, AT&T has been positive about obtaining the requisite approval, indicating that it expects the deal to close by the end of this year.

CNN Saw The Most Watched Q1 In 14 Years

CNN saw solid ratings growth in March, as it witnessed the most-watched first quarter since Q1 2003 among both adults 25-54 and total viewers. In fact, the network was rated No. 2 among basic cable networks in the key age 25-54 demo, behind Fox News. For the quarter ending March, the network grew 12% y-o-y in Total Day viewers, and 22% y-o-y in the 25-54 demo. ^[1] In addition, The Lead with Jake Tapper posted its highest quarterly performance (+56% y-o-y) on record in both 25-54 and total viewers, showing the most growth in cable news in the time period. Also, CNN programming at 9pm (mostly Anderson Cooper) was up double digits compared to last year, increasing 67% in the demo and 52% in total viewers. The benefit of this increase in viewership could boost the company’s advertising income in the first quarter.

Warner Bros. Benefits From LEGO Batman

Warner Bros. collected $386 million at the U.S. box office during the March quarter, primarily led by the success of The LEGO Batman Movie and Kong: Skull Island. The LEGO Batman Movie has so far grossed close to $174 million at the global box office, against a production budget of $80 million. ^[2] The studio’s performance was better in Q1 2017 as compared to the prior year quarter, which should help boost earnings.

Future Outlook

Reuters’ compiled analyst estimates forecast revenues of $7.67 billion and earnings of $1.46 per share for Q1 2017, implying growth of about 5% and (2%), respectively. The company expects its total advertising revenue to be flat to up low single digits in the first quarter.

In 2017, the company anticipates solid double digit domestic subscription revenue growth at the Turner networks, driven by continued benefits from affiliate renewals. However, the company’s programming costs could grow in double digits, due to approximately $400 million of incremental costs of the new NBA contract in the first half of 2017. At HBO, Time Warner expects subscription revenue growth to be in high single digits, as the company plans to complete its additional affiliate deals and expand its digital distribution. At Warner Bros., the company expects growth led by its theatrical and video game businesses, along with two more DC films as well as The LEGO Batman Movie. This improvement in subscription revenue growth at HBO and a strong movie lineup could boost the company’s adjusted operating income in 2017.

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1. Q1 2017 Ratings: CNN Has Most-Watched Q1 Since the Iraq War, Adweek, Mar 28 2017 [↩]
2. The Lego Batman Movie, Box Office Mojo [↩]