Time Warner, which recently announced it will would spin off its magazine unit Time Inc., had a tougher quarter at its film division after some box office disappointments. The company reported earnings of $720 million, up 24% from the $583 million in Q1 2012. That beat average analysts’ predictions of $710 million. Q1 revenue was $6.94 billion, down less than 1% from $6.98 billion in the year-ago period. Analysts had expected $7.15 billion. Lower theatrical and TV ad revenues were posted due to lower demand at its news channels.
Revenues of $6.9 billion were flat compared to the year-ago quarter, as growth at the Networks segment was offset by declines at the Film and TV Entertainment and Publishing segments. Adjusted Operating Income grew 7% to $1.4 billion due to increases at the Networks and Film and TV Entertainment segments, offset in part by declines at the Publishing segment.
In Q1, Time Warner posted Adjusted Diluted Net Income per Common Share (Adjusted EPS) of $0.82 versus $0.67 for the year-ago quarter. Diluted Income per Common Share was $0.75 for the quarter, compared to $0.59 for last year’s first quarter.
Excluding publishing, revenues were flat, adjusted operating income rose 10% and Operating Income grew 13%.
Networks (Turner Broadcasting and HBO) revenues increased 3% ($93 million) to $3.7 billion, benefiting from growth of 5% ($115 million) in Subscription revenues, partly offset by declines of 1% ($12 million) in Advertising revenues and 4% ($11 million) in Content revenues. The increase in Subscription revenues resulted primarily from higher domestic rates and international growth. Advertising revenues benefited from growth at Turner’s domestic entertainment networks due principally to higher pricing, offset in part by the timing of the 2013 NCAA Tournament.
Ad revenue growth at Turner’s domestic entertainment networks was more than offset by declines at its news networks, due to lower demand, and the shutdown of Turner’s general entertainment network, Imagine, in India and TNT television operations in Turkey in the first half of 2012.
Adjusted Operating Income grew 7% ($87 million) to $1.3 billion due primarily to higher revenues. Programming costs were essentially flat compared to the prior year quarter as higher costs for originals were offset by the timing of the NCAA Tournament, lower programming write-downs and cost reductions due to the shutdown of Imagine and the TNT television operations in Turkey.
Operating Income increased 11% ($125 million) to $1.3 billion. The current year quarter included $20 million of charges related to Turner’s international operations. The prior year quarter included a $58 million charge related to Turner’s decision to shut down Imagine.
The NCAA Tournament across TBS, TNT, truTV and CBS averaged 10.7 million total viewers, up 11% from last year, and was the most-watched NCAA Tournament in 19 years. During the first quarter of 2013, TBS ranked #1 among ad-supported cable networks with adults 18-34 and adults 18-49 in primetime. The Big Bang Theory on TBS ranked as ad-supported cable’s top comedy series of the quarter in total day delivery among all key adult demographics. Adult Swim was ad-supported cable’s #1 network for key adult and male viewers in total day delivery, and the first quarter was the most-watched quarter in its history. In March 2013, Southland on TNT and Coverage Inside Syria & Homs 2012 on CNN both received 2013 George Foster Peabody Awards.
For the first two episodes of its third season, HBO’s Game of Thrones is averaging a gross audience of 13.4 million viewers per episode, putting it on pace to become HBO’s second most popular series ever.
Film and TV Entertainment (Warner Bros.) revenues decreased 4% ($103 million) to $2.7 billion, reflecting mainly lower theatrical performance and a decline in television licensing revenues resulting primarily from fewer significant international syndication availabilities. The declines were offset in part by higher home video revenues from the strong performance of The Hobbit: An Unexpected Journey and Argo and revenues from the Warner Bros. Studio Tour London – The Making of Harry Potter, which opened in March 2012.
Adjusted operating income rose 23% ($50 million) to $265 million, as contributions from The Hobbit: An Unexpected Journey and lower print and advertising costs more than offset the decline in revenues. Operating Income grew 23% ($49 million) to $263 million.
The Hobbit: An Unexpected Journey surpassed $1 billion at the global box office, making it the fourth biggest film in Warner Bros.’ history. The Ellen DeGeneres Show, which is in its 10th season, has been renewed by stations covering 97% of the U.S. through the 2015-2016 season. Season-to-date, Warner Bros. Television’s Revolution and The Following rank as the top two new series on primetime broadcast television among adults 18-49.
Publishing (Time Inc.) revenues declined 5% ($36 million) to $737 million, reflecting declines of 11% ($31 million) in Subscription revenues and 10% ($8 million) in Other revenues, partly offset by an increase of 2% ($6 million) in Advertising revenues. The decrease in Subscription revenues was a result of lower subscription and newsstand sales, partially due to certain weekly titles having fewer issues than the prior year quarter. Advertising revenues increased due to revenues from SI.com and Golf.com, the management of which was transferred from Turner to Time Inc. during the second quarter of 2012, partly offset by lower magazine advertising revenues. The transfer of SI.com and Golf.com benefited Advertising revenues and negatively impacted Other revenues.
During the quarter, Time Inc. increased its leading share of overall domestic magazine advertising to 23.0%, its highest share in over two decades.
Said Chairman and CEO Jeff Bewkes: “We’re off to a strong start in 2013, making us even more confident in our full-year outlook. Our Adjusted Operating Income in the first quarter increased 7% to $1.4 billion, up 10% excluding Publishing, and Adjusted EPS climbed 22%. These results reflect the ongoing strength of our content, particularly in television. At Turner, the NCAA Division I Men’s Basketball tournament was the most watched March Madness in almost two decades. And we’re seeing good momentum across most of Turner’s networks, including TBS, which was the #1 ad-supported cable network in primetime across adults 18-34 and 18-49 during the quarter. This quarter we also announced our plans to spin off Time Inc. into an independent publicly-traded company, which we expect to complete by the end of the year. As we said when we announced the spin-off in March, we believe this is the best structure for both Time Inc. and Time Warner, and expect this step will create additional value for our stockholders. Underscoring our commitment to stockholder returns, so far this year we’ve repurchased almost $870 million of our stock and paid out over $270 million in dividends.”
Adjusted EPS was $0.82 for the quarter, compared to $0.67 in last year’s first quarter. The increase in Adjusted EPS primarily reflected higher Adjusted Operating Income and fewer shares outstanding.
For the three months ended 3/31, the company reported Net Income attributable to Time Warner Inc. shareholders of $720 million, or $0.75 per diluted common share. This compares to Net Income attributable to Time Warner Inc. shareholders in the first quarter of 2012 of $583 million, or $0.59 per diluted common share. For Q1 2013 and 2012, the company reported Net Income of $720 million and $581 million, respectively.
In January, the board authorized a total of $4 billion in share repurchases beginning 1/1/13, which replaced the amount remaining under the prior authorization. From 1/1/13 through 4/26/13, the company repurchased approximately 16 million shares of common stock for approximately $868 million.
Noted Marci Ryvicker, Wells Fargo Securities Senior Analyst:
Q1 revenue came in light. Revenue was $6.939B, (-0.6%) vs. our $7.100B estimate (+1.7%) and Consensus of $7.144B (+2.4%) – the miss was predominantly in Studio, but Networks and Publishing were also modestly lower. Networks revenue was $3.695B (+2.6%) v. our $3.723B (+3.4%), as subscription revenue (+5.0% v. our +6.0%) and advertising revenue (-1.0% v. our +0.0%) came in slightly short.
Film revenue was $2.681B, (-3.7%) vs. our $2.868B (+3.0%)% – the miss was due to softer theatrical results and lower TV licensing revenue from fewer international syndication deals.
Publishing revenue was $737MM (-4.7%) vs. our $759MM (-1.8%) – the miss here resulted from lower subscription revenue (-11.0% v. our -2.0%), as advertising was actually UP 2% in the quarter.
Adjusted operating income was $1.429B, (+5.9%) vs. our $1.384B estimate (+2.5%) and Consensus of $1.390B (+3.0%). The beat v. our estimate was due to lower than expected costs in all segments.
Adjusted EPS (ex-items) were $0.82 v. our $0.74 and Consensus of $0.75. The beat was driven mostly by operational expense control.
TWX confirmed FY guidance of low double digit EPS growth – we and Consensus are currently at $3.65 for F2013E.
TWX repurchased $672MM worth of shares in Q1 vs. our $625M expectation. It appears TWX has kept a similar pace in Q2, with ~$196MM purchased through 4/26.
BOTTOM LINE – Q1 results were mixed with light revenue more than offset by better than expected cost controls.