TW surges 25% in 2nd qtr.

NEW YORK — Strength at Warner Bros., Turner cable networks and cable systems offset a big downturn at Warner Music and helped Time Warner Inc. report a $30 million net profit for the second quarter, up from a $40 million loss a year earlier, on 25% higher revenue of $5.9 billion.

The entertainment giant said its earnings before interest, taxes, depreciation and amortization — cash flow — rose 27% to $1.3 billion in the three months to June 30. Adjusted for the impact of acquisitions, the cash flow growth was 16%.

That was better than expected, and investors applauded the numbers by pushing Time Warner stock up $4.25 to close at $49.62, a little below its year-high of $50.75.

“We have turbocharged the performance of the company,” Time Warner chairman Gerald Levin said, and he predicted the growth rate would be sustained.

“The operating results are very strong and better than expected,” said Lehman Bros. analyst Larry Petrella, noting that music’s downturn had been anticipated.

Warner Music’s cash flow dropped 24% to $125 million, on 6% lower revenues of $822 million. Levin told reporters Warner Music was going through a “transition year” resulting from the difficult retailing environment, but he downplayed the significance of the dip.

Doesn’t really matter

“On the way we measure businesses, that is return on capital and cash flow, the business was not only very sound but ranked very high in our pantheon of businesses, and while it’s not contributing to our growth this year, it doesn’t really matter because the company is very strong,” Levin said.

He added that on the “measures that count,” such as domestic market share, Warner Music remained in a strong position. “I am very confident and comfortable with the nature of the business and where we are going,” he said.

Warner Music was the only major down spot in the entertainment giant. Warner Bros., whose second-quarter releases “Fathers’ Day” and “Batman & Robin” didn’t perform as well as expected, surprised analysts with a 10% increase in cash flow to $155 million, on 1% lower revenue of $1.25 billion.

Biggest grossing ‘Batman’?

Levin stressed that “Batman & Robin” would be the biggest-grossing “Batman” film ever internationally, so far having grossed about $56 million overseas and nearly $100 million domestically. Levin noted that merchandising revenues from the picture were significant, ensuring the fourth “Batman” outing will make money.

The domestic reception may have given Time Warner something of a pause, however. Levin noted that “the next time we go out with a ‘Batman’ film won’t be two years … a little bit more,” although he added “the franchise is fine.”

Levin also said that despite a drop in Warner Bros.’ market share for the year to date, “I am very comfortable with what the share will be at the end of this year … I put my money on ‘Contact,'” he said.

In addition to merchandising revenues, Merrill Lynch analyst Jessica Reif said, Warner Bros. television operations was providing the film side with a big cushion.

Also performing better in the quarter was the New Line Cinema and Castle Rock operations of TBS, which posted $31 million in cash flow, compared with a loss of $21 million a year ago, helped by the strength of New Line’s “Austin Powers: International Man of Mystery.”

The WB Network’s losses jumped 50% to $18 million in the quarter, which the company said was due to the “continued rollout of the network’s national broadcast operation.”

Robust cable

Very strong performances came from the cable side of Time Warner’s businesses, both cable programming and systems. The TBS networks group turned in 41% higher cash flow of $186 million, driven by “significant gains in advertising revenues” at the TNT, TBS and CNN networks, Time Warner said.

HBO had another record quarter, pushing cash flow up 18% to $103 million. And Time Warner’s cable systems increased cash flow 15% to $554 million, reflecting “an increase in basic cable, pay-per-view and advertising revenues.”

Time Inc. increased cash flow 12% to $174 million, helped by “strong advertising performance at nearly every magazine franchise.”

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