Time Warner (TWX) Beats on Q4 Earnings, Guides for 2018

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Time Warner Inc. TWX , which accepted the buyout offer of AT&T, Inc. T , posted fourth-quarter 2017 adjusted earnings of $2.66 per share that rose sharply from $1.25 reported in the prior-year period. Adjusted earnings include a tax provision benefit of $1.06 on account of latest tax reform. However, excluding the same, quarterly earnings came in at $1.60. Analysts polled by Zacks had projected earnings of $1.44.

Including one-time items, earnings per share from continuing operations came in at $1.75 per share, up from 40 cents delivered in the year-ago quarter.

Time Warner's total revenue of $8,611 million increased 9% year over year on account of growth witnessed across Home Box Office ("HBO"), Warner Bros. and Turner. Total revenue also came ahead of the Zacks Consensus Estimate of $8,466.5 million.

Adjusted operating income came in at $1,918 million, up 9% from the year-ago quarter, however, adjusted operating margin remained flat at 22.3%. Management now projects adjusted operating income growth in the high single digits for 2018.

Time Warner Inc. Price, Consensus and EPS Surprise

Time Warner Inc. Price, Consensus and EPS Surprise | Time Warner Inc. Quote

Time Warner has taken restructuring aggressively. The company is now focusing on original programming, containing costs and increasing investments in key areas to enhance profitability. The company's investments in video content and technology continued to show results. The company witnessed robust subscription revenue growth at Home Box Office and Turner.

We observed that the stock was up roughly 1.1% during pre-market trading hours. However, we also noticed that shares of this New York based company have underperformed the industry in the past six months. Over the said period, the stock has fallen 7% as against the industry 's decline of 2.1%. Shares of Time Warner came under pressure after its planned takeover by AT&T in a deal worth $85.4 billion hit a roadblock. The Department of Justice raised antitrust concerns over the proposed merger.

Segment Details

Turner division's revenue rose 10% to $3,123 million on account of 14% increase in subscription revenue, 32% jump in content and other revenue, and 2% increase in advertising revenue. Subscription revenue grew due to rise in domestic rates and growth at Turner's international networks, partly offset by fall in domestic subscribers. Higher content and other revenue was attributable to rise in licensing revenues. Advertising revenues increased on account of higher revenues related to MLB postseason games and growth at Turner's international networks.

Adjusted operating income for the segment surged 20% to $1,022 million compared with the year-ago quarter.

Management anticipates 2018 subscription revenues to rise in the mid-single digits compared with the prior year. The company envisions programming costs and total expenses growth to moderate. Operating income growth rate is expected to accelerate for full year.

Total advertising revenues are expected to improve in the high single to low double-digits in the first quarter of 2018. Operating income is expected to decline in the first quarter due to rise in expenses on account of the airing of the NCAA Tournament Final Four games and the timing of original series.

Time Warner's HBO segment revenue increased 13% to $1,680 million driven by growth of 16% in subscription revenue, partly offset by 7% fall in content and other revenue. Higher subscription revenue was primarily attributed to a rise in domestic rates and subscribers, and international growth. Lower content and other revenues reflect fall in international licensing revenues.

Adjusted operating income for the division climbed 12% to $483 million.

Management envisions HBO's 2018 subscription revenues to increase at a similar rate as in 2017 but expects content and other revenues to decline significantly. The company anticipates operating income to increase at a fair rate in 2018.

Time Warner expects HBO's subscription revenue in the first quarter to increase at a rate similar to the expectation for the full year. However, content and other revenues are expected to decline considerably in the first quarter. Management expects operating Income to decline in the first quarter.

Warner Bros. revenue jumped 5% to $4,053 million on account of higher games revenues, partly offset by fall in theatrical revenues.

Adjusted operating income for the division declined 12% to $514 million.

Management envisions operating income to improve in 2018 on account of higher games profits and increase in television licensing revenues of theatrical product. However, first-quarter operating income is expected to decline by a double-digit percentage.

Other Financial Aspects

Time Warner ended the quarter with cash and equivalents of $2,621 million, long-term debt of $18,294 million and shareholders' equity of $28,375 million, excluding non-controlling interest of $1 million. During the quarter, the company incurred capital expenditures of $294 million and generated free cash flow of $860 million.

Zacks Rank

Time Warner carries a Zacks Rank #3 (Hold). Investors looking for better-ranked stocks can count upon Sinclair Broadcast Group, Inc. SBGI and Nexstar Media Group, Inc. NXST both carrying a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Sinclair Broadcast Group and Nexstar have a long-term earnings growth rate of 5.8% and 12.9%, respectively.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
Referenced Symbols: T , SBGI , NXST

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