Earnings Preview: Time Warner

Zacks

Time Warner Inc. (TWX) is slated to release its second-quarter 2012 financial results on Wednesday, August 1, 2012.

The current Zacks Consensus Estimate for a profit of 58 cents a share for the quarter reflects a year-over-year decline of 3% from 60 cents reported in the comparable prior-year quarter. The estimates in the current Zacks Consensus range from a low of 57 cent to a high of 62 cents a share. The Zacks Consensus revenue estimate stands at $6,975 million for the second quarter.

Recap of the First Quarter

Time Warner posted better-than-expected first-quarter 2012 results. Quarterly earnings of 67 cents per share beat the Zacks Consensus Estimate of 64 cents, and surged 16% from 58 cents per share posted in the prior-year quarter, reflecting higher adjusted operating income across Networks, and Film and TV Entertainment (earlier Filmed Entertainment) segments.

Total revenue in the quarter grew 4% year over year to $6,979 million on the back of growth registered in the Networks, and Film and TV Entertainment segments. The reported revenue also handily beat the Zacks Consensus Estimate of $6,809 million.

Time Warner reiterated its low double-digit growth expectation for fiscal 2012 earnings per share.

Zacks Agreement & Magnitude

For to-be-reported quarter, out of 23 estimates, 1 and 12 estimates went down over the last 7 and 30 days, respectively, whereas only one estimate was revised upward in the last 30 days. For fiscal 2012, out of 27 estimates, six estimates were trimmed in the last 30 days, whereas three estimates went up over the same period. No changes were noticed over the last 7 days.

For the second-quarter, the estimates remain unchanged in the last 7 days while the estimates fell by a couple of cents in the last 30 days.

The downward revision in the estimates reflects the decline in advertising and subscription revenue on account of reduced domestic and international newsstand revenues. Time Warner derives a major portion of its revenue from advertising and the analysts fail to observe any near-term catalysts for advertising revenue. As a result, most of the estimates were revised downwards for the to-be-reported quarter.

Positive Earnings Surprise History

With respect to earnings surprise, Time Warner has topped the Zacks Consensus Estimate over the last four quarters with an average of 6.3%.

Conclusion

The company has been expanding its digital presence to facilitate consumers to enjoy contents in more platforms and devices. Time Warner enhanced the reach of HBO GO streaming service to mobile devices and entered into a deal with Apple so that the print subscribers of Time, Fortune and Sports Illustrated may access the iPad editions of these magazines at no additional charges.

Moreover, Warner Bros. became the first movie studio to offer video on demand, and acquired Flixster, a movie search application on smartphones and mobile devices.

Time Warner’s significant international presence has helped broaden its client base and product portfolio. Time Warner operates in the United Kingdom, Germany, Canada, France, Japan and other countries apart from the United States. We believe that its strong international exposure will drive growth in the coming quarters.

Even though Time Warner’s international presence helps to widen its customer base among other positives, fluctuations in currency exchange rates can adversely impact the company’s international sales.

Moreover, Time Warner faces stiff competition across its different segments with News Corporation (NWSA) and Walt Disney Company (DIS), who always look to grab market share by offering lower prices, new services or services that are different from those offered by Time Warner.

Currently, Time Warner carries a Zacks #3 Rank implying short-term Hold rating and correlates with our long-term Neutral recommendation.

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