Time Warner Still in AOHell

The home of Michigan J. Frog -- that kooky, sings-only-when-he-wants-to dancing amphibian mascot of the WB netlet -- has published results for the first quarter.

Time Warner (NYSE:TWX) saw its earnings double this past quarter to $0.20 per diluted share vs. $0.09 in the year-ago period. Overall revenues increased a respectable 9% to $10.1 billion. Free cash flow increased to $1.07 billion as opposed to last year's $750 million.

One of the biggest issues that can plague a big media conglomerate -- Disney (NYSE:DIS) comes to mind on this count -- is its debt load, and there is some good news on this front: due to the divestiture of the Warner Music Group, net debt now stands at $18.8 billion, down from the $22.7 billion that was on the company's balance sheet at the end of 2003. (Backing out the effect of the sale -- and including some charges -- the diluted EPS for the first quarter would be $0.15 compared to $0.10 per diluted share last year.)

A standout segment is filmed entertainment. We all know about the Lord of the Rings: The Return of The King cornucopia. How about the continued syndication success of Seinfeld (that certainly isn't about nothing)? Or DVD releases such as Freddy vs. Jason and The Texas Chainsaw Massacre remake (can't wait for all three villains to get in the ring someday).

Operating income rose 92% for filmed entertainment, but the movie and television business is as cutthroat as any of the cast members on The Apprentice -- Disney, Fox (NYSE:FOX), or Viacom (NYSE:VIA) are always waiting to grab market share in these arenas. Other segments such as publishing, cable, and networks also did well. Better growth in overall advertising revenues, however, would be nice since ads are an important driver.

Of course, you can't talk about Time Warner without mentioning the America Online service. The division continues to plague results, and it's having a hard time competing with the likes of EarthLink (NASDAQ:ELNK) and Comcast (NASDAQ:CMCSA). Revenues did nothing, and this past quarter saw 237,000 subscribers in the U.S. depart for greener online pastures (or just plain depart).

The AOL service operating in Europe saw a gain of 38,000 users. Many fantasies have been floated on Wall Street concerning the ditching of the unit; fair enough, considering that the merger hasn't exactly lived up to the ecstatic hype surrounding the concept's inception. Nevertheless, if true synergies could be exploited within the vertical structure of this huge concern, extraction of value might still be feasible. The recent AOL/Road Runner initiative is an example of such considerations.

With summer bringing a new spell from Harry Potter for the multiplexes and a mindset towards debt reduction and careful business management, the frog may have something to sing about after all. Time Warner justifies a serious appraisal by any investor.

David Gardner certainly considered Time Warner a good investment opportunity when he recommended it to Motley Fool Stock Advisor subscribers back in the August 2002 issue. To check out the rest of David's lineup, sign up for six months, risk-free.

Fool contributor Steven Mallas owns shares of Disney.