Foolish Forecast: Time for a Time Warner Warning?

Media conglomerate Time Warner (NYSE:TWX) reports on its third-quarter results Wednesday morning. As the Writers Guild of America puts up a picket fence in front of Warner Bros., New Line Cinema, and other production studios, let's ponder what lies ahead for the media giant.

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

Warner was a three-star CAPS stock for a long time, but dropped one notch recently as the stock price swooned, and it got an avalanche of new thumbs-down ratings.

"Once [CEO Dick Parsons] leaves and AOL is sold off, I see the stock price only going higher for at least the near term," says one optimistic player. On the bearish side, another player thinks that the entire industry in which Time Warner operates is at risk because of "increased downloads and increased animosity toward the big labels. This dinosaur will be extinct. The question is really when."

What management says:
In the last earnings report, Parsons noted that the company's balance sheet was strong, free cash flow generation was robust, and growth prospects looked excellent. But, "Most importantly, our earnings per share delivered double-digit growth, benefiting from our recently completed stock repurchase program."

Shrinking the pool of shares outstanding is always a shareholder-friendly move, and it's nice to see the boss aligned with owner interests in that way. The cynic in me must remind you that Parsons' bonus depends on boosting per-share returns over the long term, and that he holds more than $11 million in Time Warner stock himself, so of course he cares about results per share. It's amazing what a little bit of incentive can do. Oh and by the way, there's a fresh $5 billion buyback authorization to replace the old, exhausted one.

What management does:
You can see earnings growth and all the margins going over a hump about a year ago, while revenue growth has continued to accelerate.

One Fool says:
Parsons is on his way out; his contract expires next May, and the company is expected to pick a new CEO in time for Wednesday's report. COO Jeff Bewkes looks the part with a solid resume from seven years of making HBO the valuable asset it is today, and another five running various media operations. He'd only have to brush up a little on the cable provider and Internet sides of the business, and he'd be good to go. Jeff has a reputation as a tough-nosed businessman, who might well break the company up -- much to the delight of activist investor Carl Icahn.

Some year-over-year comparisons are easier than others. Four quarters ago, the only box-office hit from Warner's filmed entertainment division was Superman Returns. This year, there were at least two real hits in Rush Hour 3 and another Harry Potter installment, as well as the DVD release of 300. So that segment should have some good numbers to strut. All reports indicate that movie studios have stocked up on scripts ahead of the strike, and should be able to continue shooting fresh movies well into next year.

However, the real breadwinner here is the cable TV division. Time Warner Cable (NYSE:TWC) has a ticker of its own, but its results are still fully incorporated into the mothership's reports. Peers like Comcast and Cablevision (NYSE:CVC) have underwhelmed the market lately, as "triple play" subscriber growth appeared to slow down over the summer, and Cablevision shareholders rejected a buyout bid from its own management.

The question you need to ask yourself ahead of this report, then, is whether these problems are company-specific or sectorwide. Given Comcast's recent comments on adjusting its marketing strategies, I'd say the former.