Time Warner Q4 Earnings Beat, Revenues Miss, Stock Down

Time Warner Inc. TWX posted fourth-quarter 2015 adjusted earnings of $1.06 per share that surpassed the Zacks Consensus Estimate of $1.01, and rose 8% year over year. Lower taxes and share repurchase activity provided cushion to the stock. The company's investments in video content and technology continued to show results.

Management now projects adjusted earnings per share for 2016 between $5.30 and $5.40. The current Zacks Consensus Estimate for 2016 is $5.28, which may witness an uptrend in the coming days. Unfavorable foreign currency fluctuations hurt the bottom line by 12 cents a share.

Including one-time items, earnings per share from continuing operations came in at $1.06 per share, up from 84 cents reported in the prior year quarter.

Time Warner's total revenue of $7,079 million declined 6% year over year on account of a revenue decline witnessed at Warner Bros., partly offset by increase in revenue at Home Box Office (“HBO”) and Turner. Total revenue also fell short of the Zacks Consensus Estimate of $7,552 million. As a result, the stock is showing a decline of roughly 8.5% during pre-market trading hours.

Adjusted operating income came in at $1,405 million, down 12% from the year-ago quarter, reflecting decline across all operating divisions. Adjusted operating margin contracted 140 basis points to 19.8%.

Management highlighted that foreign currency headwinds impacted revenue and adjusted operating income by $270 million and $115 million, respectively, in the quarter.

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. In a strategic move to unlock the value of its core business activities, Time Warner spun off its magazine division into a separate, publicly traded company, Time Inc. TIME.

Segment Details

Turner division's revenue rose 2% to $2,661 million due to 5% growth in advertising revenue. Subscription and Content and other revenues remained flat in the quarter. Higher advertising revenue reflected domestic growth and local currency growth at Turner’s international networks, partly offset by unfavorable foreign exchange rates. Domestic advertising revenue rose on account of growth at Turner’s news business and the airing of the MLB playoffs.

Adjusted operating income for the segment plunged 15% to $781 million from the year-ago quarter due to rise in programming costs (up 22%) during the quarter.

Time Warner's HBO segment revenue climbed 6% to $1,412 million driven by growth of 3% in subscription revenue and 20% in content and other revenue. Higher subscription revenues were primarily attributed to a rise in domestic rates, partly offset by fall in international revenues. On the other hand, content and other revenues increased due to rise in international licensing revenue, partly offset by fall in home entertainment revenue.

Adjusted operating income for the division was almost flat at $393 million as higher revenue was offset by increased expenses. The increase in expenses was primarily attributed to rise in programming expenses as well as increased marketing and technology costs associated with HBO NOW, HBO's stand-alone streaming service.

Warner Bros. revenues declined 13% to $3,305 million on account of fall in theatrical revenues, as the prior-year quarter gained from the releases of The Hobbit: The Battle of the Five Armies, Interstellar and Annabelle. Unfavorable foreign exchange rates also weighed upon the segment’s performance. Adjusted operating income for the division fell 5% to $373 million.

Other Financial Aspects

Time Warner ended the quarter with cash and equivalents of $2,155 million, long-term debt of $23,594 million and shareholders' equity of $23,619 million.

During the quarter, Time Warner incurred capital expenditures of $173 million and generated free cash flow of $689 million. From Jan 1, 2015 through Feb 5, 2016 the company bought back about 52 million shares, aggregating approximately $4.1 billion.

Time Warner also raised its quarterly dividend by 15% to 40.25 cents a share, which will be paid on Mar 15, 2016 to shareholders on record as of Feb 29, 2016.

Further, the company’s board of director had earlier announced a $5 billion share repurchase program commencing Jan 1, 2016. This also includes the amount remaining under previous authorization.

Time Warner, which competes with Twenty-First Century Fox, Inc. FOXA and The Walt Disney Company DIS, currently carries a Zacks Rank #2 (Buy).

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