Foolish Forecast: Time Warner Unzipped

Wednesday morning is fourth-quarter reporting time for Time Warner (NYSE: TWX  ) . The entertainment, Internet portal, print publishing, and cable provider agglomerate didn't impress anybody with its last report, but perhaps times have changed? Let's find out.

What Fools say:
Here's how Warner's CAPS scoring rates against some of its peers and competitors:

	Market Cap (millions)	Trailing	CAPS Rating
News Corp. (NYSE:NWS)	$60,363	18.5	***
Time Warner	$57,364	12.8	***
Walt Disney (NYSE:DIS)	$58,523	13.8	****
Yahoo! (:YHOO)	$39,358	62.7	***
Lions Gate Entertainment (NYSE:LGF)	$1,172	N/A	****

Data taken from Capital IQ, a division of Standard and Poor's, and Motley Fool CAPS.

The bulls are scraping their hoofs right now, mumbling something about buyout opportunities, parts adding up to more than the whole entity today, and even an unabashed gut feeling. The bear arguments are more pointed, focusing on a broad market downturn and an old-school entertainment industry on the fast track to extinction.

What management does:
Warner is growing sales but shrinking profit margins, which adds up to a somber bottom-line trend overall. The good news comes from growing cash flows, even in the face of increased capital expenses.

Margins	6/2006	9/2006	12/2006	3/2007	6/2007	9/2007
Gross	43.3%	43.4%	43.1%	42.5%	41.9%	41.3%
Operating	17.4%	17.8%	17.8%	18.0%	18.0%	18.1%
Net	10.9%	14.2%	14.8%	13.9%	13.9%	10.9%
FCF/Revenue	4.9%	5.2%	10.1%	7.5%	6.9%	7.9%

Growth (YOY)	6/2006	9/2006	12/2006	3/2007	6/2007	9/2007
Revenue	1.7%	2.1%	4.3%	6.8%	8.1%	9.0%
Earnings (normalized)	17.2%	15.2%	9.3%	4.2%	(1.6%)	(1.4%)

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Newly appointed CEO Jeff Bewkes has signaled that he wants to break up this unwieldy collection of businesses to unlock the value in a thriving entertainment production studio and troubled-yet-profitable cable provider network. But it's unclear where the laggardly AOL division would land.

Some of us had been hoping for Yahoo to buy that once-premium piece of unreal estate; others were waiting for Microsoft (Nasdaq: MSFT  ) or even Google (Nasdaq: GOOG  ) to don the shining armor and make a play. Now, one of those prospective suitors wants to buy another, and the third watches the spectacle with a long face and short temper.

While we ponder the fate of the online operation, entertainment content and broadcasting services will bring in the bacon. Not that those divisions don't have troubles of their own, but at least the issues are further ahead and there's still time to adjust accordingly. The latest Harry Potter DVD hit store shelves in time for the holiday rush, so this quarter should be just fine.