Time Warner Inc. ( TWX ),
the diversified media conglomerate, posted second-quarter 2012
earnings of 59 cents a share that beat the Zacks Consensus Estimate
by a penny but dropped 1.7% from 60 cents earned in the prior-year
quarter due to dismal performance across Film and TV Entertainment
and Publishing segments, partially offset by strength witnessed
across Networks and television production businesses.
On a reported basis, including one-time items, quarterly
earnings came in at 44 cents a share down 25.4% from 59 cents in
the year-ago quarter.
However, Time Warner reiterated its low double-digit growth rate
expectation for fiscal 2012 earnings per share. The current Zacks
Consensus Estimate for fiscal 2012 is $3.21 per share, reflecting a
growth of approximately 11% from fiscal 2011.
Time Warner's total revenue in the quarter slipped 4% to $6,744
million from the prior year-quarter attributable to revenue
declines across Film and TV Entertainment and Publishing units,
partially offset by growth witnessed in Networks segment. The
reported revenue also fell short of the Zacks Consensus Estimate of
Adjusted operating income declined 5% to reach $1,213 million,
whereas operating margin came in at 18% compared with 18.2% in the
Networks division's revenue, which
includes Turner Broadcasting and HBO, rose 4% to $3,598 million,
driven by an increase of 6% in subscription revenue and a jump of
2% in advertising revenue, partially offset by a decline of 5%
registered in content revenue. Adjusted operating income for the
segment increased 9% to $1,121 million attributable to growth in
revenue, partially offset by higher expenses, including increased
Time Warner's Film and TV Entertainment
segment revenue dipped 8% to $2,614 million due strong
releases in the year-ago quarter, which included theatrical release
of The Hangover Part II , the home entertainment release
of Harry Potter and the Deathly Hallows: Part 1 , and the
videogame releases of Mortal Kombat 9 and LEGO Pirates
of the Caribbean: The Video Game .
However, increased television licensing revenue in the quarter
helped in mitigating the decline to some extent. Adjusted operating
income for the division, which comprises Warner Brothers, plunged
16% to $137 million due to a fall in revenue.
Publishing revenue fell 9% to $858
million reflecting a 7% decline in advertising revenue due to a
fall in domestic magazine advertising revenue, and an 11% drop in
subscription revenue on account of reduced newsstand revenue
globally and decreased domestic subscription sales. Adjusted
operating income plummeted 43% to $97 million from the prior-year
quarter, principally due to lower domestic revenue.
Other Financial Aspects
Time Warner ended the quarter with cash and cash equivalents of
$2,470 million, long-term debt of $19,421 million, reflecting a
debt-to-capitalization ratio of approximately 39.7%, and
shareholders' equity of $29,443 million.
During the quarter, Time Warner incurred capital expenditures of
$150 million and generated free cash flow of $202 million.
From January 1, 2012 through July 27, 2012, Time Warner bought
back 40 million shares, aggregating $1.5 billion. The company's
board of directors had authorized a share buyback plan of $4
billion in January 2012.
Currently, we have a long-term Neutral recommendation on the
stock. Moreover, Time Warner, which competes with
News Corporation ( NWSA )
and Walt Disney Company ( DIS ),
holds a Zacks #3 Rank, which translates into a short-term Hold
rating, and correlates with our long-term view.
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