Time Warner's Q4 Earnings Are Not Optimistic

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Feb 16, 2015

With the decline in the Warner Bros Studio’s collections at its HBO and Turner cable business looking dull, Time Warner Inc. (TWX, Financial) reported a 1% decline in December quarter revenue. There was still a visible rise in the share about 1% in premarket trading owing to the media company raising its dividend and providing 2015 per-share earnings guidance that overlapped analyst estimates.

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Reports also say that Time Warner has been reducing staffs to cut cost across its business and increasing company’s focus on video content through its Warner Bros. Film studio and cable channels namely HBO, TNT and CNN.

Insight into Time Warner’s fourth quarter earnings

The earnings of third quarter, as Time Warner reported was $718 million that translates into 84 cents a share. The adjusted per share earnings had been 98 cents excluding items which were said to affect comparability, and $1.14, excluding programming charges at Turner alongside restructuring and severance charges. That prompted the revenue to fall to $7.53 billion from $7.6 billion.

The market analysts were expecting earnings of 93 cents a share on revenue of $7.55 billion on average. The lower home-entertainment and videogame revenues caused the Warner Bros. revenue to slide by 5% to $3.8 billion. This year, they have initiated the release of "Edge of Tomorrow" and "Tammy," which follows the previous year’s "Man of Steel," "The Hangover Part III" and the videogame release of "Batman: Arkham Origins." These new releases are expected to draw the audiences in large numbers.

Reasons at play behind Time Warner’s profit drop

Soon after rival Walt Disney Co (DIS, Financial) posted a magnificent quarter backed by the earnings from its theme parks and the soaring success of ‘Frozen’ which is still earning profits for Disney from the merchandise sales despite having crossed a year since its launch. Time Warner’s earnings, could not match the pace of Frozen’s unprecedented success and looks rather dull as compared to Walt Disney.

What won points this year was the The Hobbit: The Battle of the Five Armies. It is the third and the most successful film in the franchise which has generated close to $1 billion worldwide.

Last year, Time Warner’s earnings hugely benefitted from a big Hobbit film - The Hobbit: The Desolation of Smaug, aligned with other blockbusters like Gravity. The home video releases of Man of Steel, Pacific Rim and The Hangover Part III pumped up the earnings further. Moreover, with Amazon.com (AMZN, Financial) and Netflix (NFLX, Financial) entering into the movie and TV business scene has proved to be quite a threat to Time Warner.

Why the decline in profit should not scare the investors

Nevertheless the rather dull earnings doesn’t mean that Time Warner stock will collapse and for now quite impressively it is trading up 30% over the last 52 weeks, leaving past the border market at 13% profit count only. Time Warner’s earnings are seemingly ready to furnish robust growth figure in the recent times to come, as the market participants presume.

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Last words

Toeing the line of other media companies, Time Warner has fiercely bought back stock in recent years fuelling the per-share earnings growth. Figures has it that from the beginning of 2014 until Feb 6., the company has repurchased about 80 million shares for about $5.8 billion and since the company's third-quarter release, it has repurchased about 12 million shares for about $948 million which only drops the hint that Time Warner will not leave investors disillusioned with the next quarter earnings report and also push up the revenue margin significantly.