Time Warner Inc. (TWX)

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Time Warner (TWX)

Q2 2011 Earnings Call

August 03, 2011 10:30 am ET

Executives

John Martin - Chierf Administrative Officer, Chief Financial Officer and Executive Vice President

Jeffrey Bewkes - Chairman and Chief Executive Officer

Douglas Shapiro - Head of Investor Relations

Analysts

Anthony Wible - Janney Montgomery Scott LLC

Jessica Cohen - BofA Merrill Lynch

Michael Morris - Davenport & Company, LLC

Spencer Wang - Crédit Suisse AG

Richard Greenfield - BTIG, LLC

Michael Nathanson - Nomura Securities Co. Ltd.

Barton Crockett - Lazard Capital Markets LLC

John Janedis - UBS Investment Bank

Douglas Mitchelson - Deutsche Bank AG

Tuna Amobi - S&P Equity Research

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Time Warner 2011 Second Quarter Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Doug Shapiro, Senior Vice President, Investor Relations for Time Warner. Please proceed.

Douglas Shapiro

Well, thanks. This morning, we issued 2 press releases: One, detailing our results for the second quarter, and the other updating our 2011 full year business outlook.

Before we begin, there are 2 items I need to cover. First, we refer to certain non-GAAP financial measures. Schedules setting out reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included in our earnings release and trending schedules. These reconciliations are available on our website at timewarner.com/investors. Reconciliations of our expected future financial performance are also included in the business outlook release that's available on our site.

Second, today's announcement includes certain forward-looking statements, which are based on management's current expectations. Actual results may vary materially from those expressed or implied by these statements due to various factors. These factors are discussed in detail in Time Warner's SEC filings, including its most recent annual report on Form 10-K and subsequent quarterly report on Form 10-Q.

Time Warner is under no obligation and, in fact, expressly disclaims any obligation to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise.

Thank you, and with that, I'll turn the call over to Jeff.

Jeffrey Bewkes

Thanks, Doug, and good morning, everyone. Overall, the second quarter was another pretty successful quarter for us. We posted our highest revenue growth in 4 years, up 10%. We grew adjusted earnings per share by 20%, and we continue to buy back our stock at a faster pace than last year, acquiring another $1 billion worth for almost 3% of our equity base since we last reported earnings to you. And as you saw in our outlook released this morning, we remain fully on track to meet, if not exceed, our guidance for the full year. More important, this quarter, we had significant progress toward our key strategic objectives. We continue to invest aggressively to make sure that our businesses each remain at the top of their competitive sets. At the same time, we continue to advance to new digital business models that will enable us to thrive as technology and consumption patterns evolve.

Here's my perspective on some of the key highlights from the quarter starting in our Networks. As you know, the upfront marketplace was very strong, particularly for TV. This year, the National Cable Network reportedly pulled in higher dollar commitments than broadcast for the first time ever. Turner performed even better than its peers. Our large-reach entertainment networks, TNT and TBS, both saw in its solid double-digit CPM increases, putting them at the high end of all of TV, broadcast or Cable. It marks the third time in the last 4 years that our CPM increase has outstripped the average of the broadcast networks, providing more evidence that we're narrowing the CPM gap in broadcast.

This strength extends beyond TNT and TBS. Both truTV and Adult Swim saw pricing and volume increases substantially higher than the average for Cable Networks. And our news networks also performed extremely well, with CNN outpacing its cable news competitors for both CPM and volume growth. This performance in the upfront across the entire portfolio is a broad endorsement by advertisers. It underscores the incredible reach of our Networks, the #1 and #2 reach networks on cable, TNT and TBS, the highest reach cable news network, CNN, and the growing reach of Adult Swim and truTV. And that reflects the appeal of our brands and programming and the skill of our sales force in creating compelling marketing partnerships.

Beyond our performance in the upfront, I'll spend a moment updating you on recent ratings trends. TNT had its best quarter ever in primetime, with our sports programming leading the way. We posted fantastic results from our coverage of the NBA playoffs on TNT, clearly the best in cable history and up more than 25% over last year. We also saw strong performances from our originals on TNT, our new share of Falling Skies debuted as the #1 new series launch of the year and, by the way, it's also been posting great numbers on our international networks. Last month, we brought back the Closer and also Rizzoli & Isles, which are delivering the biggest audiences of any dramas on Cable so far this year.

So that's great, but we aren't satisfied with the recent ratings on some of our acquired content on TBS and TNT. That's something we're very focused on and plan to fix. Some of this recent performance is a reflection of the natural life cycle of acquired shows, which tend to decline over time. But we're confident that our plans to add some of the biggest hits on TV will boost viewership, shows like The Big Bang Theory, which is the #1 comedy on TV, and it will debut on CBS at the end of the third quarter; and The Mentalist, the #3 drama on TV, which will start stripping on TNT next year. We also recently struck deals to bring Castle and Hawaii Five-0 to TNT. Keep in mind that even one successful show can have a significant impact for these networks, and we think we have several in the pipeline. As a result, we expect these moves will improve ratings starting with TBS in the fourth quarter.

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