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Factors Influencing Time Warner's (TWX) Fate in Q3 Earnings

Time Warner Inc.TWX , which accepted the buyout offer of AT&T, Inc., is slated to report third-quarter 2017 results before the market opens on Oct 26. In the trailing four quarters, this media and entertainment company has outperformed the Zacks Consensus Estimate by an average of 16.7%. In the preceding quarter, the company witnessed a positive earnings surprise of 11.8%.

Investors are keeping their fingers crossed and hoping that Time Warner surpasses earnings estimate even this time. Let's delve deeper and find out the factors impacting the results.

How are Estimates Shaping Up?

After registering an increase of 3% in the bottom line, Time Warner is likely to witness a year-over-year decline in the third quarter of 2017. The current Zacks Consensus Estimate for the quarter under review is $1.53 down from $1.83 reported in the year-ago period. We also note that the Zacks Consensus Estimate has decreased by a couple of cents in the past seven days, which indicates that analysts are not very optimistic about the company's performance.

Meanwhile, analysts polled by Zacks expect revenues of $7,412 million, up 3.4% from the year-ago quarter. We note that the rate of growth is likely to decelerate from 5% registered in the preceding quarter.

Time Warner Inc. Price, Consensus and EPS Surprise

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

Factors Influencing This Quarter

We believe that Time Warner's foray into new markets, focus on original programming, cost reduction and increasing investments in key areas bode well. Additionally, the company has been expanding digital presence to enable consumers to access content from several platforms and devices. Its investments in video content and technology continue to drive results. All these initiatives are likely to be reflected in the quarter to be reported.

However, decline in overall advertising spending and currency headwinds may adversely impact performance. Further, management had earlier projected that Turner division's total advertising revenue is likely to decline in the low-single digits in the third quarter. We also note that the Zacks Consensus Estimate of revenues for the segment, which is currently pegged at $2,777 million, is down from $3,102 million reported in the second quarter but reflects year-over-year growth of 6.4%.

Time Warner's Home Box Office ("HBO") segment is expected to generate revenues of $1,555 million, up 9% from the year ago period. Management had earlier guided that Home Box Office's subscription revenue growth rate would rise in the second half of 2017 and total revenues is projected to increase at a higher rate in the second half compared to the first half.

Analysts polled by Zacks envision revenue to decline at Warner Bros., which may weigh on the company's top-line. Total revenues for the segment is projected to be $3,326 million, down 2.2% year over year.

What Does the Zacks Model Suggest?

Our proven model does not conclusively show that Time Warner is likely to beat earnings estimates this quarter. A stock needs to have both a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP for this to happen. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Time Warner carries a Zacks Rank #4 (Sell) but has an Earnings ESP of +5.23%, consequently making the surprise prediction difficult.

Stocks With Favorable Combination

Here are some other companies you may want to consider as our model shows that these too have the right combination of elements to post an earnings beat:

Activision Blizzard, Inc. ATVI has an Earnings ESP of +3.77% and a Zacks Rank #3. You can see the complete list of today's Zacks #1 Rank stocks here .

Discovery Communications, Inc. DISCA has an Earnings ESP of +0.61% and a Zacks Rank #3.

Scripps Networks Interactive, Inc. SNI has an Earnings ESP of +0.29% and a Zacks Rank #3.

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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.


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

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