Time Warner Inc. (TWX - Analyst Report) posted fourth-quarter 2014 adjusted earnings of 98 cents a share that surpassed the Zacks Consensus Estimate of 94 cents, reflecting strength across Turner and Home Box Office (“HBO”). The company's investments in video content and technology continued to show results. However, earnings per share of this Zacks Rank #3 (Hold) stock fell 8% year over year. Soft performance at Warner Bros. hurt the results to some extent.
Management now expects adjusted earnings per share for 2015 between $4.60 and $4.70. The current Zacks Consensus Estimate for 2015 is $4.68 per share.
Including one-time items the quarterly earnings came in at 84 cents a share, substantially down from $1.06 in the prior-year quarter.
Time Warner's total revenue of $7,525 million fell marginally by 1% year over year and also came below the Zacks Consensus Estimate of $7,540 million.
Adjusted operating income tumbled 10% to reach $1,596 million due to restructuring and severance costs witnessed across all divisions as well as charges associated with the stopped airing of certain Turner programming.
Time Warner has taken restructuring aggressively. The company is now focusing on original programming, reducing 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 - Snapshot Report). Time Warner had earlier divested Time Warner Cable Inc. (TWC - Analyst Report) and AOL Inc. (AOL -Snapshot Report) into independent companies. The company now concentrates purely on television networks and film and TV production businesses.
Segment Details
Turner division's revenues rose 2% to $2,607 million, driven by growth of 5% in subscription revenues and 3% in content revenues, partially offset by 1% decrease in advertising revenues. Higher subscription revenues were primarily attributed to a rise in domestic rates and international growth. Advertising revenues declined due to fall at Turner's domestic entertainment networks.
Adjusted operating income for the segment increased 5% to $921 million due to higher revenue.
Time Warner's HBO segment revenues grew 6% to $1,338 million driven by growth of 5% in subscription revenues and 14% in content and other revenues. Higher subscription revenues were primarily attributed to a rise in domestic rates and subscribers. On the other hand, content and other revenues increased on account of a rise in home video revenues.
Adjusted operating income for the division declined 5% to $394 million because of increased programming, distribution and marketing expenses.
Warner Bros. revenues fell 5% to $3,815 million because of fall in home entertainment and videogames revenues and currency translation headwinds. This was partly offset by increased television licensing revenues.
Adjusted operating income for the division plunged 32% to $391 million due to fall in revenues and higher restructuring and severance charges.
Other Financial Aspects
Time Warner ended the quarter with cash and equivalents of $2,618 million, long-term debt of $21,376 million and shareholders' equity of $24,476 million. The company’s Board of Directors also announced a 10% hike in its quarterly dividend to 35 cents a share.
During the quarter, Time Warner incurred capital expenditures of $158 million and generated free cash flow of $903 million. From Jan 1, 2014 through Feb 6, 2015 the company bought back about 80 million shares, aggregating approximately $5.8 billion. As of Feb 6, the company still had $4.2 billion remaining at its disposal.
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