Time Warner Posts Record Full-Year Adjusted Profit for HBO, Raises Dividend

The entertainment giant, led by CEO Jeff Bewkes, posted lower fourth-quarter earnings amid currency headwinds and charges, but exceeded expectations.

Time Warner, led by CEO Jeff Bewkes, on Wednesday reported better-than-expected fourth-quarter financials and record full-year adjusted operating earnings for its HBO unit.

The company also raised its quarterly cash dividend by 10 percent to 35 cents per share.

The entertainment conglomerate, whose businesses include HBO, Warner Bros. and the Turner networks, posted earnings of $718 million, or 84 cents per share, down nearly 27 percent from $983 million in the year-ago period. Adjusted earnings came in at 98 cents per share, beating Wall Street estimates. Revenue dropped 1 percent to $7.53 billion, coming in slightly below Wall Street estimates.

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Wall Street analysts had on average predicted earnings of 93 cents per share, compared with $1.06 per share in the year-ago period, on revenue of $7.55 billion, compared with $8.57 billion.

Affecting results were currency fluctuations and previously signaled programming writedowns at Turner and charges tied to layoffs at the company's businesses. Foreign currency effects of $137 million at Turner led to a negative revenue impact of around 5 percent, according to analysts. The dollar has been strong, with the euro, pound and other currencies declining in value compared to it as of late. That means revenue made abroad translates into a lower dollar amount.

CFO Howard Averill recently updated the company's guidance for the quarter, highlighting greater-than-expected restructuring charges at Turner and Warner Bros., an additional programming writedown at Turner and increased tax expense.

HBO's 2014 adjusted operating income rose to a record $1.79 billion from $1.68 billion in 2013. HBO had "another outstanding year, airing its most-watched original series ever – Game of Thrones – and its most-watched freshman series, True Detective," Bewkes said.

Fourth-quarter revenue rose 6 percent at HBO, but adjusted operating profit dropped 5 percent "primarily due to higher programming, distribution and marketing costs." Programming costs rose 15 percent driven by higher expenses for originals and acquired theatrical films.

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Warner Bros. had a mixed fourth quarter, with the theatrical performance of The Hobbit: The Battle of the Five Armies, Horrible Bosses 2, which underperformed the first film, and Annabelle, which exceeded expectations. TW cited lower home entertainment and video games revenue, due to the strong year-ago performance of Batman: Arkham Origins, as well as the negative effect of foreign currency exchange rates as affecting quarterly results. Those trends were only partially offset by higher TV licensing revenues.

Fourth-quarter revenue dropped 5 percent at Warner Bros., and adjusted operating earnings fell 32 percent to $391 million "mainly due to the decline in revenues and higher restructuring and severance charges" amounting to $119 million. The company also mentioned a $36 million foreign currency charge and another $36 million charge for "asset impairments," which it didn't detail further.

Warner Bros. had adjusted operating profit of $1.25 billion in 2014. In 2013, the unit had posted adjusted operating profit of $1.33 billion, a record for the division and up from $1.24 billion in 2012. "Higher revenues were more than offset by higher television production costs and increased restructuring and severance costs," the company said about Warner's full-year profitability. The latest year included $169 million of restructuring and severance costs, compared with $49 million in 2013. Excluding them, adjusted operating income would have risen to $1.4 billion in 2014.

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Turner's 2013 adjusted operating income had increased to $3.54 billion, a record for the unit, with the 2014 figure dropping to $3.11 billion, still well ahead of the other company divisions.

Turner's fourth-quarter revenue rose 2 percent despite a 1 percent advertising decline due to continuing ratings challenges at TNT and TBS. Adjusted operating profit for the quarter grew 5 percent to $921 million. "Programming costs declined 1 percent as Turner incurred $44 million in charges in the fourth quarter of 2014, compared to $68 million in last year’s quarter," the company said. "Excluding the programming charges and $26 million in restructuring and severance charges, adjusted operating income would have been $991 million."

Turner subscription revenue growth of 5 percent was impacted by a carriage dispute with Dish, foreign exchange issues and fewer paying subscribers, analysts said.

TW said Wednesday it expects its 2015 full-year adjusted earnings per share from continuing operations to be in the range of $4.60 to $4.70, up from $4.41 per share in 2014. That is slightly above Wall Street expectations.

"We had another very successful year in 2014, with solid revenue growth and robust 18 percent adjusted earnings per share growth – our sixth consecutive year of at least high teens adjusted earnings per share growth," said Bewkes. "Our financial performance reflects the strength of our position as the world’s leading video content company."

TW's stock trended slightly higher in pre-market activity.

Email: Georg.Szalai@THR.com

Twitter: @georgszalai