Time Warner Profit Falls Less Than Estimates on Cable

Time Warner Profit Falls Less Than Estimates on Cable (Update5)
By Cecile Daurat

May 2 (Bloomberg) -- Time Warner Inc., the world's largest media company, raised its 2007 forecast after surging cable- television earnings helped first-quarter profit beat analysts' estimates.

Net income declined 18 percent to $1.2 billion, or 31 cents a share, from $1.46 billion, or 32 cents, a year earlier, New- York based Time Warner said today in a statement. Sales rose 9.2 percent to $11.2 billion.

Profit was dragged down by a 27 percent decline at the film division, which failed to produce a hit to beat last year's ``Harry Potter'' DVD release. Cable profit rose 54 percent after the purchase of Adelphia Communications Corp. AOL earnings gained 27 percent as advertising revenue increased, a sign that Chief Executive Officer Richard Parsons may be succeeding in his effort to revive the Internet unit.

``The key takeaway is the company seems to be on the right track,'' said Tuna Amobi, an equity analyst at Standard & Poor's. ``The highlights of the quarter were the cable unit and AOL.''

Excluding one-time items, profit of 22 cents beat the 21- cent average of 17 analyst estimates compiled by Bloomberg.

Time Warner raised its 2007 forecast for earnings before one-time items to $1.05 a share, from $1 on Jan. 31. Analysts expected 99 cents on average, based on 23 estimates compiled by Bloomberg. Earnings on that basis were 81 cents in 2006.

Shares of Time Warner, which also owns CNN and Fortune magazine, rose 62 cents, or 3 percent, to $21.21 at 1:16 p.m. in New York Stock Exchange composite trading. They had fallen 5.5 percent this year before today. Time Warner Cable Inc. rose 75 cents to $36.97.

Phone, Web Service

Earnings were buoyed by a $670 million gain on the sale of AOL's Web access division in Germany and $146 million from investments related to cable assets in Kansas City, Missouri. Excluding one-time items, profit a year ago was 26 cents a share.

Time Warner Cable, the second-largest U.S. cable company, began trading publicly in January as part of the parent company's purchase of cable franchises from bankrupt Adelphia.

The Stamford, Connecticut-based cable division, 84 percent owned by Time Warner, benefited from demand for packages of phone, digital cable and Internet services.

Revenue rose 61 percent to $3.85 billion, making it the fastest-growing Time Warner unit for the 14th straight quarter.

``We like the fact that with our own currency we can continue to participate in the inevitable consolidation in the cable space,'' Parsons said on a conference call.

AOL Gains

Cablevision Systems Corp. today agreed to be taken private by the Dolan family for $10.6 billion in cash, capping their two-year effort to buy the company.

``Our position for many years has been that if the Dolans were ever to decide to part with that business, we would be on their list of people to talk to,'' Parsons said.

AOL profit rose to $542 million as ad revenue gained 40 percent. The growth in ad sales beat the 28 percent estimate by Spencer Wang, an analyst at Bear Stearns Cos. in New York.

Parsons, 59, hired TV veteran Randy Falco in November to run AOL and accelerate ad sales growth. He reiterated today that AOL's ad revenue will rise faster than the U.S. market this year.

``Our confidence in AOL's strategy is higher than ever,'' Parsons said. ``It's going very well so far.''

Sales dropped 25 percent after AOL started offering its e- mail and software for free to broadband users last year to attract Web surfers and advertisers. The Web access division lost 1.2 million subscribers in the quarter.

Harry Potter

Profit at the film division fell to $332 million. Revenue declined 1.3 percent to $2.7 billion.

Earnings will fall in the first half and rise ``sharply'' in the second half, Parsons said. Warner Bros. will release ``Harry Potter and the Order of the Phoenix'' in theaters in July.

First-quarter DVD sales of ``The Departed'' and ``Happy Feet,'' at $132 million and $198 million, respectively, failed to match the $209 million and $290 million turned in last year by the ``Wedding Crashers'' and ``Harry Potter,'' according to Goldman Sachs Group Inc. analyst Anthony Noto.

The unexpected theatrical success of ``300,'' an epic about Spartan warriors battling a larger Persian army, wasn't enough to lift earnings. The film took in $207 million in North American box office receipts, according to Box Office Mojo.

Publishing Cuts

At the cable-networks unit, including HBO, CNN and TNT, operating profit rose 6 percent to $937 million.

Publishing profit fell 28 percent to $84 million.

The unit cut 290 jobs in January, or 2.8 percent its workforce, to reduce expenses. The publisher of People and In Style eliminated 600 positions in 2006 as advertising sales declined. The unit also closed Life magazine, less than three years after restarting the title as a weekly.

Fortune's ad sales fell 5.4 percent in the first quarter, according to data from Publishers Information Bureau. Sports Illustrated, People and In Style gained 6.7 percent, 8.2 percent and 1.5 percent respectively in the period.

(For a replay of Time Warner's conference call visit http://ir.timewarner.com/ .)