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Time Warner reports y-o-y increase in Q3-2014

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BENGALURU: Time Warner Inc (Time Warner) posted 34 per cent higher adjusted EPS for Q3-2014 (quarter ended 30 September 2014) at US$ 1.22 (on a lower adjust outstanding share base) and better than last quarter’s US$ 0.98.

Diluted income per share in Q3-2014 was US$1.11 (average 870.2 million diluted shares outstanding) versus the US$ 1.25 (average 938.8 million diluted shares outstanding) in Q3-2013 and US$ 0.98 (average 894.2 million diluted shares outstanding) in Q2-2014.

For Q3-2014, Time Warner reported total revenue (TIO) of US$  6243 million, which was 3.3 per cent more y-o-y at US$ 6042 million, but 8 per cent less that the US$ 6788 million in Q2-2014. Total adjusted operating income at US$ 993 million in Q3-2014 was 37.5 per cent less than the US$ 1589 million in Q3-2013 and 38.6 per cent lower than the US$ 1618 million in Q2-2014.

Time Warner chairman and CEO Jeff Bewkes said, “We had another good quarter, featuring solid revenue growth as well as strong growth in Adjusted EPS. As we discussed at our Investor Event last month, we've refocused the company over the past few years to aggressively pursue the huge global opportunities we see in video content. And once again, we are seeing the benefits of our increased investments in great content and storytelling. In the quarter, both Turner and HBO had double-digit increases in subscription revenues, reflecting the growing strength and appeal of their programming. HBO received 19 Primetime Emmy Awards, the most of any network for the 13th straight year, including five Emmys for newcomer True Detective. At Turner, TNT ranked as ad-supported cable’s #1 primetime network for the second consecutive quarter, TBS was the #2 ad-supported cable network in primetime among adults 18-49 and 25-54, and Adult Swim again shined as ad-supported cable’s #1 total day network among its key adult demos. Turner’s extension last month of its longstanding relationship with the NBA through the 2024-25 season is another great example of investing in distinctive programming that will serve us well for years to come. This fall, Warner Bros. is once again the number one producer for broadcast television, including a strong slate of new shows. Season-to-date, Gotham ranked as broadcast’s #2 new show among adults 18-49, while The Flash had the most-watched telecast ever on The CW. These shows are among five series featuring DC characters that will air this season. DC is also a key component of the ambitious film slate that Warner Bros. recently unveiled. Further demonstrating our continuing commitment to shareholder returns, so far this year we’ve returned over $5.7 billion to our shareholders in the form of share repurchases and dividends.”

Time Warner has three segments that contribute to its numbers – Turner, Home Box Office (HBO) and Warner Bros (WB). Turner, which contributes about 40 per cent of TIO, disappointed with a drop in its share of adjusted operating income to 35.2 per cent versus the approximately 60 per cent during Q2-2013, Q3-2013 and Q2-2014. All of Time Warner’s segments reported y-o-y reduction of adjusted operating income in Q3-2014.

Let us look at the numbers reported by the segments of Time Warner for Q3-2014

Turner

Turner reported revenue of US$ 2556 million (39.2 per cent of TIO), which was 4.6 per cent more than the US$  2338 million (38.7 per cent of TIO), but 11.1 per cent lower than the US$  2750 million (40.5 per cent of TIO) in the immediate trailing quarter ended June 30, 2014.

Adjusted operating income from this segment fell a massive 64 per cent to US$ 350 million (35.2 per cent of total adjusted operating income) from US$ 971 million (61.1 per cent of total  operating income) and was 62.8 per cent lower than the US$ 940 million (35.2 per cent of total adjusted operating income)in Q2-2014.

Here is what the company has to say about its Turner segment results:

Revenues rose 5 per cent (US$ 108 million) to US$ 2.4 billion, mainly due to growth of 10 per cent (US$ 117 million) in subscription revenues and 17 per cent (US$ 12 million) in content revenues, offset in part by a decline of 2 per cent (US$ 18 million) in advertising revenues. The increase in subscription revenues was primarily due to higher domestic rates and international growth. Advertising revenues decreased due to declines at Turner’s international networks. Advertising revenues at Turner’s domestic networks were essentially flat.

Adjusted Operating Income declined 64 per cent (US$ 621 million) to US$ 350 million, as higher revenues were more than offset by higher programming costs and increased restructuring and severance costs. Programming costs grew 84 per cent due to the current year quarter’s US$ 482 million of charges related to Turner’s decision to no longer air certain programming. Excluding these charges, programming costs increased in the low double digits due to higher costs associated with increased volume of original programming and the first year of Turner’s new agreement with Major League Baseball. The current year quarter included US$ 199 million of restructuring and severance costs compared to US$ 30 million in the prior year quarter. Excluding the programming and restructuring and severance charges, Adjusted Operating Income would have been US$ 1.0 billion.

HBO segment

HBO reported 9.9 per cent increase in revenue in Q3-2014 at US$   1304 million (20.9 per cent of TIO) from US$   1186 million in Q3-2013, but was 8 per cent less than the US$   1417 million (20.9 per cent if TIO) in Q2-2014.

HBO’s adjusted operating income at US$   380 million (38.3 per cent of total adjusted operating income) was 4.3 per cent lower than the US$   397 million (25 per cent of total adjusted operating income) in Q3-2013 and 31.2 per cent lower than the US$   552 million (34.1 per cent of total adjusted operating income) in Q2-2014.

Here is what the company has to say about its HBO segment results:

Revenues grew 10 per cent (US$ 118 million) to US$ 1.3 billion, reflecting increases of 10 per cent (US$ 106 million) in subscription revenues and 7 per cent (US$ 10 million) in content revenues. The increase in subscription revenues resulted from higher domestic rates and subscribers as well as the consolidation of HBO Asia and HBO South Asia (collectively, HBO Asi”). The growth in content revenues was primarily due to increased home video revenues.

Adjusted Operating Income decreased 4 per cent (US$ 17 million) to US$ 380 million, as higher revenues were more than offset by increased expenses due to higher programming and distribution costs as well as increased restructuring and severance costs. Programming costs grew 16 per cent due to increased expenses for original and acquired programming as well as the consolidation of HBO Asia. Distribution costs increased primarily due to higher participation expenses. The current year quarter included US$ 48 million of restructuring and severance costs compared to US$ 24 million in the prior year quarter. Excluding the restructuring and severance charges, Adjusted Operating Income would have been US$ 428 million.

Operating Income declined 24 per cent (US$ 122 million) to US$ 380 million. The prior year quarter included a US$ 105 million gain related to Home Box Office’s acquisition of its former partner’s interests in HBO Asia in September 2013.

Warner Bros (WB)

WB reported 3 per cent growth in revenue in Q3-2014 to from US$   2775 million (44.4 per cent of TIO) from US$   2694 million (44.6 per cent of TIO) in Q3-2014, but was 3.3 per cent lower than the US$   2870 million (42.3 per cent of TIO) in Q2-2014.

WB’s adjusted operating income at US$   241 million (24.3 per cent of total adjusted operating income) was 20.2 per cent lower than the US$   302 million (19 per cent of total adjusted operating income) in Q3-2014, but 2.1 per cent higher than the US$   236 million (14.6 per cent of total adjusted operating income) in Q2-2014.

Here is what the company has to say about its WB segment results:

Revenues increased 3 per cent (US$ 81 million) to US$ 2.8 billion, mainly due to growth in subscription video-on-demand revenues for television product, higher licensing of theatrical product, growth in television production, including from the acquisition of Eyeworks Group’s operations outside the U.S., and revenues from a patent license and settlement agreement. These increases were partly offset by softer performance of current year quarter theatrical releases compared to the prior year’s slate, which included Pacific Rim, The Conjuring and We’re the Millers, and lower domestic off-network television license fees.

Adjusted Operating Income decreased 20 per cent (US$ 61 million) to US$ 241 million, as higher revenues were more than offset by increased restructuring and severance costs, higher film costs for television product and a value added tax accrual. The current year quarter included US$ 45 million of restructuring and severance costs compared to US$ 2 million in the prior year quarter. Excluding the restructuring and severance charges, Adjusted Operating Income would have been US$ 286 million.

Operating Income declined 23 per cent (US$ 70 million) to US$ 237 million.

Through 2 November, Annabelle grossed over US$ 230 million at the worldwide box office. Season-to-date, Gotham ranked as broadcast’s #2 new drama series among adults18-49. The premiere of The Flash had a total of 6.8 million total viewers in final live +7 ratings, making it The CW network’s most-watched telecast ever.

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