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Time Warner Earnings: Sporting Events Help the Advertising Business Return to Growth

By Demitri Kalogeropoulos - Apr 30, 2018 at 1:55PM

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The media giant affirmed its full-year outlook as it waits for resolution on a proposed merger with AT&T.

Time Warner (TWX) recently posted first-quarter earnings results that included growth on the top and bottom lines. The entertainment giant couldn't provide shareholders with any concrete details about its proposed merger with AT&T (T 2.18%), since that deal remains in legal limbo, but the quarterly report did show continued operating gains that kept Time Warner on track to meet its 2018 projections.

Here's how the headline results compared to the prior-year period:

 Metric

Q1 2018

Q1 2017

Year-Over-Year Change

Revenue

$8 billion

$7.7 billion

3%

Net income

$1.64 billion

$1.42 billion

16%

EPS

$2.07

$1.80

15%

Data source: Time Warner.

What happened with Time Warner this quarter?

Growth slowed overall, mainly thanks to choppy results out of the Warner Bros television and film segment. And, despite healthy ratings, especially with respect to sports content and HBO releases, Time Warner's profitability slipped due to rising content and programming expenses.

A young woman on a couch watching TV.

Image source: Getty Images.

Highlights of the quarter included:

  • Advertising revenue spiked higher by 9% compared to declines in each of the prior three quarters. The gains were powered by growth in the Turner networks that aired NCAA basketball tournament games. That boost, plus higher carriage fees, helped Turner overcome a drop in the subscriber pool. Profits slipped, though, due to higher costs around sports programming.
  • Sales growth slowed at the Home Box Office segment and operating income dipped. However, the division managed to gain subscribers in both the domestic and international markets while average rates rose. Spiking HBO programming expenses pushed operating income down 12%.
  • The Warner Bros segment shrank as an increase in video game revenue only partially offset declines in the TV and film arenas. Together, two big theatrical releases in the prior-year period, Kong: Skull Island and The LEGO Batman Movie, pulled in more ticket sales than Ready Player One did during this past quarter.

What management had to say

CEO Jeff Bewkes highlighted the company's steady ratings performances across its broadcast TV, subscription services, and film and TV production arms. "Turner had another successful multiplatform airing of the NCAA Division I Men's Basketball Tournament," Bewkes said, "while CNN was the No. 1 news network among adults 18-34 and remained the leader in digital news."

"Home Box Office had another standout quarter and we recently had the much-anticipated return of Westworld," he continued. Warner Bros, Bewkes explained, "remained a leader in television production with top comedies like The Big Bang Theory and Young Sheldon and top unscripted series, including The VoiceThe Bachelor and Ellen's Game of Games, airing across the broadcast networks."

Looking forward

Bewkes and his team didn't have any updates to provide on the pending AT&T merger and only said they "remain excited" about the benefits of bringing these two giants together, when the deal is finally approved by regulators. The latest results keep the company on track to meet its aggressive financial goals, though, including a high-single-digit increase in operating profits.

Time Warner sees advertising revenue rising modestly for the full 2018 year while programming expense growth moderates. The HBO segment, meanwhile, should post big subscriber growth figures that more than offset significantly higher programming costs. As for Warner Bros, operating income should spike higher overall due to gains in both the television and film release arenas.

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