Time Warner Third-Quarter Earnings Exceed Estimates

The entertainment conglomerate, led by chairman and CEO Jeff Bewkes, raises its full-year expectations as 'Suicide Squad' and CNN's election coverage help boost the latest quarterly financials.

Time Warner, the corporate parent of Warner Bros., HBO and the Turner networks that has agreed to be acquired by telecom giant AT&T, on Wednesday reported better-than-expected third-quarter earnings and raised its full-year financial targets.

The entertainment conglomerate, led by chairman and CEO Jeff Bewkes, posted earnings of $1.87 per share, or $1.83 per share in earnings from continuing operations. Wall Street had on average forecast earnings of $1.37 per share, compared with $1.25 in the year-ago period. Even when excluding a 28 cents per share benefit from an IRS-approved tax accounting change, the results beat estimates.

“We had a strong third quarter, which keeps us on track to exceed our original 2016 outlook and underscores our leadership in creating and distributing the very best content," said Bewkes. "In television, HBO took home more primetime Emmy Awards than any other network for the 15th consecutive year, and Time Warner’s divisions won a total of 40 Emmys, more than any other company. CNN’s standout election coverage made it the No. 1 news network in primetime among adults 18-49 for the fourth consecutive quarter, and Turner’s momentum doesn’t stop there. Year-to-date, TBS, TNT and Adult Swim are three of the top five ad-supported cable networks in primetime among adults 18-49."

He added: "In film, Warner Bros. had a strong quarter led by Suicide Squad and has the No. 1 release of the fall in Sully, while anticipation is off the charts for J.K. Rowling’s Fantastic Beasts and Where to Find Them, which hits the big screen on Nov. 18."

Of course, the exec also mentioned the AT&T deal in a statement, saying it "represents a great outcome for our shareholders and an excellent opportunity to drive long-term value well into the future." Added Bewkes: "Combining with AT&T is the natural next step in the evolution of our business and allows us to significantly accelerate our most important strategies."

Revenue grew 9 percent to $7.2 billion, with HBO revenue up 4 percent, Warner Bros. up 7 percent and Turner up 9 percent.

Adjusted operating income jumped 12 percent to $2.07 billion, with HBO up 2 percent and Warner Bros. and Turner each up 12 percent.

RBC Capital Markets analyst Steven Cahall had expected Warner Bros. and Turner to grow segment profitability by around 10 percent each, while projecting a 3 percent to 4 percent drop at HBO despite higher revenue.

Film unit revenue rose primarily due to higher theatrical revenue, partially offset by lower video game revenue. Theatrical revenue increased due to the box-office releases of Suicide Squad, The Legend of Tarzan, Sully and Lights Out. Video game revenue dropped due to the comparison to the launch of Lego Dimensions and carryover revenue from Mortal Kombat X in the prior-year quarter.

Film profit increased due to the higher revenue, partially offset by higher costs associated with the mix of film releases.

HBO revenue rose due to an increase of 5 percent in subscription revenue "due to higher domestic rates and international growth," and partially offset by a decline of 2 percent in content and other revenue "due to lower domestic licensing revenues, partially offset by higher international licensing revenues."

HBO's profit edged up as revenue growth more than offset higher expenses as programming costs grew 15 percent "reflecting higher acquired theatrical programming expenses due to the timing of availabilities and increased expenses for original series."

Turner's revenue increased due to a 12 percent subscription revenue gain, 33 percent content and other revenue growth and 2 percent advertising growth. The subscription revenue gain came "due to higher domestic rates and growth at Turner’s international networks, partially offset by the impact of lower domestic subscribers and foreign exchange rates." Ad revenue "benefited from growth at Turner’s domestic news business, partially offset by lower delivery at certain domestic entertainment networks." CNN and other news networks have done well with their election coverage.

Turner profit was boosted by the higher revenue that more than offset higher expenses, including programming costs, which climbed 5 percent "primarily due to increases at Turner’s news business related to its coverage of the 2016 U.S. Presidential Election."