Time Warner Inc forecast better-than-expected 2011 earnings, pointing to the same surge in advertising sales for cable TV programs that powered fourth quarter results.
Time Warner's shares rose 8 percent after the release of its fourth-quarter earnings, which showed Chief Executive Jeff Bewkes' move to build its TV networks with programing like Conan O'Brien's late night talk show and college basketball is paying dividends.
Alongside its earnings, Time Warner also raised its quarterly dividend by 11 percent and increased its stock buyback plan to $5 billion.
Time Warner's soaring advertising revenue from its cable networks division, which includes CNN, TNT and TBS, highlighted a quarter in which overall revenue rose 8 percent and profit climbed 22 percent.
Both its profit and revenue surpassed expectations at a time when the media industry is undergoing radical change, facing threats from newer video services such as Netflix Inc and potentially Apple Inc and Google Inc.
It's a sign of just how strong the cable advertising network market is, said Alan Gould, an analyst with Evercore Partners, who added it should bode well for other media companies like Viacom, Discovery Communications and Scripps Networks.
Indeed, News Corp, which is set to report earnings later on Wednesday, is expected to see mid-teens percentage gains at its cable networks boosted in part by advertising sales. Earlier, News Corp unveiled The Daily, a new electronic newspaper solely for tablets like Apple's iPad.
Jeff Bewkes is clearly navigating and benefiting from the economic and advertising recovery while being extremely supportive of the stock in the form of dividend increase and aggressive share repurchasing, said Frederick Moran, an analyst with the Benchmark Co.
The advertising rebound coincides with fresh threats from online services including Netflix and Hulu that offer TV shows and movies for under $10 per month. U.S. cable TV subscribers pay on average $70 per month.
If large numbers of consumers choose to abandon their cable service, relying instead on alternative video services, that could potentially jeopardize a key revenue stream for entertainment companies -- the fees they collect for cable operators.
Since late last year, Bewkes has attacked Netflix's business plans, batting down concerns that the streaming video and DVD mail service for movies and TV shows poses a challenge to Time Warner and its HBO premium pay cable channel. Earlier this month, Bewkes compared Netflix to a 200-pound chimp rather than an 800-pound gorilla.
Bewkes on Wednesday said he wanted to reevaluate the pricing and timing terms of Time Warner entertainment that is available through Netflix.
Time Warner said it expects 2011 adjusted earnings per share to be up in the low teens percentage growth range off a 2010 adjusted EPS base of $2.41, ahead of what Wall Street is expecting. Analysts on average forecast 2011 earnings growth at 9 percent.
Most investors would have been happy if they got it at 10 percent growth, said Moran. It's a nice jump.
For the final quarter of 2010, net income was $769 million, or 68 cents per share, compared to $631 million, or 53 cents per share during the same period last year. Adjusted earnings were 67 cents per share, beating analysts' average estimate of 62 cents per share, according to Thomson Reuters I/B/E/S.
Total fourth quarter revenue of $7.8 billion bested analysts' average forecast of $7.47 billion.
AOL, the web company spun off from Time Warner a little more than a year ago, reported quarterly revenue dropped 26 percent as it continued to attempt a turnaround.
(Additional reporting by Paul Thomasch; Editing by Derek Caney, Phil Berlowitz)