Profits in first quarter were down 36%

Time Warner reported solid earnings Wednesday in a first quarter tarnished by softness at AOL, but chief exec Jeffrey Bewkes scored some points by affirming full-year guidance and formalizing plans to spin off Time Warner Cable.

Time Warner spun off a chunk of its cable unit in 2007 but has continued to own 84% of the second-largest U.S. operator. Wall Street had long expected the move, and Bewkes had forecast it earlier this year. He offered few details about the deal on Wednesday, describing it only as a “complete structural separation.”

Profit came in at $771 million in the period, down 36% from $1.2 billion a year earlier. Subtracting a one-time gain on the sale of AOL’s access business in Germany, profits were in line with the prior-year period.

Total revenue ticked up 2% to $11.4 billion from $11.2 billion.

The quarterly numbers included $116 million in restructuring charges related to consolidating New Line into Warner Bros. Bewkes said an additional $20 million-$30 million will be booked over the course of the year.

AOL remained the biggest issue among operating units, though its traffic has improved significantly of late. Revenue slipped 23% and earnings plummeted 74% as ad sales grew just 1%.

The access biz fell 28% to 8.7 million customers, but execs note that that’s a lot of people still paying for AOL without substantial investment from Time Warner.

An array of strategic options remain for AOL. It could still team with Yahoo in an alternative to Microsoft’s bid for Yahoo, or it could be sold off piecemeal.

Elsewhere, the film unit posted a 25% drop in profit as revenue, paced by the homevid tally for “I Am Legend,” increased 3.5%. TV profits inched up almost 2% as revenue gained 10%, with the company crediting higher subscription rates at the Turner cablers and HBO.

Bewkes affirmed full-year guidance, saying that despite the challenges, company execs feel that strength in its core TV, film and print media businesses will help the numbers meet expectations.

The conference call with analysts was dominated, as recent ones have been, by discussion of AOL and cable. At one point, chief financial officer John Martin offered a view that seems to be prevalent at the company that the best way to assess Time Warner’s value is without the AOL or cable pieces.

“If you look at our first-quarter numbers and you separate out cable and AOL for a minute, and if you exclude the restructuring charge at New Line, because clearly that is a one-time event, we actually grew 10% in the first quarter” in terms of operating income, Martin said.

Asked about acquisitions, a popular topic given the availability of Discovery, Rainbow Media, Weather Channel and potentially NBC Universal, Bewkes was coy.

“You won’t see us doing any transformative or kind of odd and philosophical vertical acquisitions,” he said. “We would be looking only at horizontal things that we really knew we could execute and add to what we currently do.”

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