Time Warner Profit Falls 53 Percent
Wednesday, November 7, 2007; 4:44 PM
NEW YORK -- Weak results from AOL tempered an otherwise strong quarter at Time Warner Inc., the company reported Wednesday, as gains from cable TV and the latest Harry Potter movie helped the media conglomerate meet Wall Street expectations.
The company, which also owns HBO, Warner Bros., CNN and Time magazine, earned $1.09 billion in the three months ended in September, down 53 percent from the same period a year ago, when results were lifted by investment gains and tax benefits. Per-share earnings fell to 29 cents from 57 cents.
Revenue rose 9 percent to $11.68 billion from $10.75 billion.
Excluding one-time gains and discontinued operations, earnings rose to 24 cents per share, in line with estimates of analysts surveyed by Thomson Financial, from 19 cents a year ago.
Time Warner's shares slipped 53 cents, or 2.9 percent, to close at $17.80 Wednesday, amid an overall decline in the market. The day's trading low of $17.73 brought the stock close to the lower end of their 52-week trading range of $17.60 to $23.15. Shares have been off 7 percent over the past year, versus a 10 percent gain in the Standard & Poor's 500 index.
Investors are hopeful that incoming Chief Executive Jeff Bewkes, who takes over Jan. 1, will move aggressively to boost the company's stock price, which is stuck at about the same level it was at five years ago. The company announced Bewkes' long-anticipated appointment on Monday, succeeding Dick Parsons, who is staying on as chairman.
Bewkes deflected questions from analysts on a conference call about his specific plans, particularly on a much-speculated possibility that Time Warner would reduce its 84 percent stake in its largest business unit, Time Warner Cable.
Bewkes, whose name is pronounced BYEW-kess, did convey urgency about adapting the company's traditional media operations to the rapid changes being wrought by technology on the ways that people consume media.
"This company has to move fast," Bewkes said. "We need to adapt all our products, how we offer them. ... All of that requires a lot of trial and error."
Speaking later in the day at an investor conference, Bewkes said of the possibility of spinning off the cable unit or other financial engineering: "Every option is on the table."
Time Warner's adjusted operating income before depreciation and amortization, a measure of profitability, rose 15 percent to $3.2 billion.
The largest gain came from Time Warner Cable, which posted 28 percent higher profit as it absorbed new subscribers from bankrupt Adelphia Communications and signed up more customers for premium services including digital phone and high-speed Internet.
Time Warner Cable also lost 83,000 basic video customers, mostly in newly acquired systems in Dallas and Los Angeles, an amount that was higher than analysts had been expecting.
The cable unit, which reports results separately, said demand had been "tepid" for a bundled package of cell phone and cable service, and the company was slowing down the marketing of that service because of back-office integration problems.
At the parent company, Time Warner's earnings from movie production, which are often volatile because of hits and misses at the box office, jumped 71 percent on the latest "Harry Potter" movie, as well as "Rush Hour 3" and "Oceans 13."
AOL reported a 23 percent drop in profit, as higher advertising revenue wasn't enough to offset more declines in subscription sales.
Advertising revenue rose just 13 percent in the quarter, a decline from the 16 percent increase in the second quarter and 46 percent growth in the same period a year ago.
Time Warner said in its quarterly regulatory filing, also disclosed Wednesday, that it expects online advertising growth to slow further in the fourth quarter because of price competition for display advertising and lower search advertising results. That pressure is expected to continue in the first quarter of next year.
AOL lost another 851,000 subscribers, ending the quarter with 10.1 million U.S. Internet access customers, as it revamps its business plan toward selling advertising.
In its latest attempt to build online advertising business, AOL said Wednesday it would acquire Quigo, a company that matches online ads to the content of Web pages, for an undisclosed amount.
Time Warner maintained its full-year earnings expectations of $1.07 per share, including 12 cents per diluted share related to after-tax gains, such as the sale of AOL's Internet access business in Germany.