Cable gains help TW profits grow

Revenues rise 6% in second quarter

Cable once again rode to the rescue for Time Warner, offsetting softness in the film and AOL units as the company posted solid second-quarter results on Wednesday.

Total revenues rose 6% to $11 billion in the quarter ended June 30. Adjusted operating income before depreciation and amortization (OIBDA) — a common measure of cash flow among the media congloms — increased 20% to $3.1 billion. Net profit increased almost 6% to $1.07 billion from $1.01 billion a year ago.

Revenues in the cable unit soared 59% to $4 billion and OIBDA increased 52% to $1.4 billion as the systems Time Warner bought from Adelphia were finally being absorbed. Time Warner Cable, the nation’s No. 2 cable operator with 13.4 million subscribers, is 84% owned by Time Warner.

CEO Dick Parsons said the timing of releases hurt the film unit, whose revenue slid 5% to $2.25 billion. OIBDA was down 24% in film to $174 million, and the net margin skidded to 7.7%. The second half of the year should bring a rebound, he predicted, thanks to Warner Bros.’ “I Am Legend” and New Line’s “Rush Hour 3” and “The Golden Compass.”

AOL, a little more than a year into its free, ad-supported restructuring, posted advertising growth of 16% — a big slowdown from 40% in the prior period. That drove a sales decline of 38% to $1.6 billion.

Publishing and TV networks had uneventful and largely flat quarters, though no news for Time Inc. could be interpreted as good news.

In a conference call with analysts, Parsons responded to a question about the structure of Time Warner by saying it will hold steady for at least the next 12-18 months. Many on Wall Street, even long after the tumult brought on by Carl Icahn has faded, have questioned the composition of the world’s largest media company, scrutinizing in particular AOL, publishing and cable.

“Our focus is on execution, not on creative structural alternatives that some people have in mind,” Parsons said. “We get asked this question every quarter, and I don’t have anything new to add.”

Jeffrey Logsdon, an analyst for BMO Capital Markets who has an “outperform” rating on Time Warner and a 9-15-month price target of $29 a share, said in a research note that the bullish case for the company rests on “higher margins for AOL as the model shifts from lower-margin subscriptions to higher-margin advertising (and) higher margin from cable as the company more efficiently operates the systems and sells higher-margin services to its newly acquired (and currently lower-margin) cable subscribers.

Along with results, the company announced a $5 billion stock buyback program.

Time Warner shares, which have sagged more than 10% over the past month, shed another 4% on the day on more than double average volume, closing at $18.54.

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