Time Warner Beats Q3 Estimates Driven By HBO, Turner

Time Warner Inc (NASDAQ: TWX) reported better-than-expected third quarter results, as both its earnings and revenue beat consensus estimates. Below we highlight some of the most notable items from the earnings release.

Our $109 price estimate for Time Warner is around 10% ahead of the market price.

• The company’s revenue increased 6% year-over-year (y-o-y) to $7.6 billion, which beat consensus estimates by $210 million. This increase was primarily driven by growth across divisions, particularly HBO, as well as the cable TV and film businesses.
• In addition, Time Warner’s adjusted operating income grew 13% y-o-y to $2.3 billion, and it also posted adjusted earnings of $1.82 per share, which was a 1% y-o-y decrease.
• The company’s free cash flow declined 10% y-o-y to $1.3 billion in the third quarter.

• In the third quarter, Turner segment revenue grew 6% y-o-y to $2.8 billion, primarily due to growth in subscription and content revenues, partially offset by declines in advertising. The segment’s operating income grew 7% y-o-y in the quarter, due to significantly higher revenues, higher gains on operating assets and lower asset impairments.
• Turner’s subscription revenue increased 13% y-o-y in the third quarter, driven by higher domestic subscription revenues of $167 million. However, the segment’s overall advertising revenue was down 3% y-o-y in the quarter due to a lower audience at Turner’s entertainment networks.

• CNN saw solid ratings growth in the September quarter, as it witnessed its most-watched third quarter ever among both adults 25-54 and total viewers in 16 years. For the quarter ending September, the network grew 17% y-0-y in total prime time viewers and 22% y-o-y in the 25-54 demographic.
• HBO saw a stellar 13% y-o-y growth in its revenues in the third quarter, driven by increased subscription and content revenues. The growth in subscription revenues was due to higher domestic revenues, reflecting higher contractual rates and increased subscribers, as well as higher international revenues, primarily reflecting growth in Europe. The segment’s operating income was up 4% in the quarter, due to higher revenues and lower restructuring and severance costs.
• HBO benefited from the seventh season of hit series Game of Thrones, which due to a later air date fit entirely in Q3 this year.

• Time Warner’s studio operations are widely diversified, with TV production, movies, electronic sales, video games and licensing. Warner Bros’ revenue increased 2% y-o-y, due to higher theatrical revenues, partially offset by declining television product revenues from television licensing. In addition, the segment’s operating income increased 26% y-o-y. The film studio collected $708 million at the U.S. box office during the September quarter, primarily led by the success of It, Dunkirk, and Annabelle: Creation. It grossed nearly $320 million at the domestic box office against a production budget of $35 million.

• In Q4, the company expects Turner’s total advertising revenues to increase in the low single-digits compared to the prior year quarter. At Warner Bros, the company expects difficult comparisons from the release of Suicide Squad in Q4 2016. At HBO, it expects growth in subscription revenues along with an increase in programming costs, resulting in a net increase in the network’s operating income.
• For the full year, the company continues to expect its operating income to grow in the high single-digits (exclusive of any merger costs related with the AT&T (NYSE:T) acquisition).

Have more questions on Time Warner? Please refer to our complete analysis for Time Warner

See More at Trefis | View Interactive Institutional Research (Powered by Trefis)

Get Trefis Technology