Time Warner Inc on Wednesday reported a first-quarter profit that beat Wall Street expectations, boosted by a rise in new cable video, Internet and phone subscribers and AOL advertising sales. Shares rose more than 1 percent before the bell as Time Warner's report of 40 percent growth in AOL advertising signalled improvements at the Internet division.
Merrill Lynch analyst Jessica Reif Cohen said in a research note that the results supported her belief that 2007 was a "comeback year" for profits. The world's largest media company said earnings fell to $1.2 billion, or 31 cents per share. The year-earlier profit of $1.5 billion, or 32 cents per share, had included a gain of 6 cents per share from a string of asset and investment sales.
Revenue rose 9 percent to $11.2 billion, while analysts on average were expecting $11.1 billion, according to Reuters Estimates. Excluding gains from asset sales such as AOL's German dial-up business, profit was 22 cents per share, beating analysts' expectations of 20 cents. Time Warner said quarterly cash flow rose 19 percent to $3.1 billion, which Oppenheimer & Co analyst Thomas Eagan said was largely in line with Wall Street estimates.
The media conglomerate's results benefited from double-digit profit increases at AOL and cable services division, offset by a drop in profit at the movies division. "It looks like the AOL strategy is on track," said Christopher Marangi, associate portfolio manager at the Gabelli Value Fund.
Last summer, AOL began to provide most of its services for free to attract more online ad dollars. Early signs look good for the once-embattled division, executives said. While AOL's revenue fell 25 percent, dragged by a 43 percent decline in subscription revenue, operating profit before depreciation and amortisation rose 27 percent.
The company raised its full-year forecast for earnings before discontinued operations and accounting changes to about 95 cents, excluding a 10 cents per share gain from asset sales. Analysts were expecting 99 cents. It said it still expected adjusted operating income before depreciation and amortisation to increase at a mid-to-high-teen percentage rate in 2007 from $11 billion in 2006. "We believe ... guidance remains conservative," Merrill Lynch's Cohen wrote. "We see upside to our current forecasts."
Cable revenue rose 61 percent, and operating profit before depreciation and amortisation rose 54 percent, boosted by growth from newly acquired systems. Movie division revenue fell 1 percent, failing to beat year-earlier sales of "Harry Potter" and "Wedding Crashers" DVDs. The division's operating income fell 34 percent, as weaker DVD sales offset strong box office for "300". Cable networks revenue were largely flat, but operating income rose 6 percent from higher subscription revenue.
At Time Warner's publishing unit, revenue fell 1 percent, and operating income declined 49 percent because of higher restructuring costs. Time Warner stock has risen 20 percent over the past 12 months after the company, which also owns People magazine and the Warner Bros. film studio, overhauled AOL's business model.
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