Time Warner Earnings Preview: ‘The Dark Knight’ Rose, But 3Q Revenue Fell

For the period ending Sept. 30, Time Warner is expected to report earnings per share of 82 cents, a 3.8 percent increase over the 79 cents reported for the same period last year. Analysts polled by Thomson Reuters expect the New York-based media conglomerate to report net income of $785 million, down from $836 million last year. The company is expected to report total third-quarter revenue of 6.9 billion, down 2.4 percent from $7.07 billion last year.

While overall ad spending is expected to be slightly lower across Time Warner’s television networks, an estimated 6 percent increase in revenue from affiliate fees will offset that decline. According to Marci Ryvicker, a senior analyst at Wells Fargo, Time Warner will report network revenue of $3.2 billion, a rise of 2.8 percent from the year-earlier period. “TWX saw net ad weighted ratings rise 2.4 percent in the quarter due to strength at TBS,” she wrote in an Oct. 9 research note. “Specifically, ‘Big Bang Theory,’ ‘Men at Work,’ ‘Sullivan & Sons’ were all up nicely, which is a nice positive for investor sentiment.”

Bolstered by higher ratings for its original programming, TBS saw an impressive 28.8 percent boost in viewership compared with the same period last year. On the other hand, Time Warner’s cable networks were hindered by steep viewership declines at CNN, which has been unable to keep pace with its more partisan cable-news rivals, Fox News and MSNBC. Ratings for CNN slid to a 20-year low during the week of July 30 - Aug. 5. The slide came just days after Jim Walton, president of CNN Worldwide, announced he would be stepping down at the end of this year, citing a need for “new thinking” at the network. The third quarter was a tough one for TV networks in general. Additional ad spending at NBC during the 2012 Olympics left fewer advertising dollars for rivals across the board.  

Time Warner’s filmed entertainment unit was hurt by lower-performing mid-summer movies for Warner Bros. Pictures in comparison to last year. “The biggest driver for the film segment was the theatrical release of ‘The Dark Knight Rises,’" wrote Michael Nathanson, an analyst with Nomura, in an Oct. 2 research note. “However, 3Q still faces difficult comparisons with ‘Harry Potter and the Deathly Hallows, Part 2’ and ‘Horrible Bosses’ among others last year.”

Released on July 20, “Dark Knight” has taken in a worldwide gross of just under $1.1 billion. By comparison, the final “Harry Potter,” released during the same week last year, has taken in $1.3 billion. Ryvicker added that “the rest of Warner Bros.’ film slate -- including ‘Magic Mike,’ ‘The Campaign,’ and ‘Apparition’ -- fell well short of the box-office success seen in FQ3 2011.”

It remains unclear if, or by how much, box-office receipts for “The Dark Knight Rises” were affected by the deadly shooting on opening night in Aurora, Colo. The movie took in slightly more than its predecessor, 2008’s “The Dark Knight,” in worldwide ticket sales. However, it fell short of that film by more than $86 million domestically, despite positive reviews and higher average ticket prices.  

In all, filmed entertainment is expected to report revenue of $2.8 billion, a 12.4 percent decline from the same period last year, according to Ryvicker. Filmed entertainment accounts for about 43 percent of Time Warner’s revenue, and in July, Trefis estimated that a single franchise like “The Dark Knight” series could contribute close to 3 percent of the company’s overall value.   

Time Warner’s publishing unit continues to lag amid slow ad growth at Time magazine, Sports Illustrated, People and other titles. The unit accounts for an estimated 12 percent of Time Warner’s stock price, according to Trefis. Analysts forecast about $114 million in operating income for the unit, down 8.8 percent from last year. Ryvicker wrote that such projections are in line with comments made by John Martin, Time Warner’s CFO, at a recent investor conference. “Mr. Martin specifically highlighted the secular headwinds in the publishing business,” Ryvicker added. “With the top-line under continuous secular pressure, we anticipate that management will remain focused on cost controls, and we maintain our expectation for a 2.2 percent decline in operating expenses in FQ3.”

It’s worth mentioning that Time Warner has beaten analysts’ estimates for the last four quarters. Last quarter it reported profits of 59 cents per share against a mean estimate of 58 cents per share.

Out of 26 analysts surveyed this quarter, 16 have rated Time Warner “Buy.” Analysts are, however, slightly less optimistic about Time Warner than they are about its closest rival, Comcast Corp. (Nasdaq: CMCSA). Out of 23 analysts, 18 gave Comcast stock a “Buy” rating.  

Time Warner will report third-quarter earnings on Wednesday, Nov. 7, before the market opens. The company’s shares closed Monday at $43.04.