Jeff Bewkes

Warner Bros. revenue drops 7% in quarter, missing analyst estimates, while studio profits rise

Time Warner turned in flat revenue for the third quarter — but its cable networks division again propped up the bottom line with the conglom boosting operating income 8% and handily beating analyst earnings estimates.

“The biggest driver was again our networks segment, which grew adjusted operating income by double digits and posted its highest quarterly profits ever,” chairman and CEO Jeff Bewkes said in announcing the results, touting performance of TBS, TNT, CNN  and HBO.

Overall revenue for the period was $6.86 billion (versus $6.84 billion in the year-ago quarter), and adjusted operating income increased 8%, to $1.7 billion due to an increase at the networks segment, partially offset by decreases at Warner Bros. and Time Inc. Net income grew 44% to $1.18 billion, which included a $137 million benefit from discontinued operations.

Time Warner posted adjusted earnings per share of $1.01, topping Wall Street’s 89 cents per share estimate. It was the conglom’s most-profitable third quarter ever.

Warner Bros. revenue decreased 7% to $2.69 billion, slightly under the consensus analyst estimate of $2.78 billion, according to StreetAccount. Studio’s adjusted operating income was $302 million, down 8% but well above the Street’s projected $244 million.

The company said Warners’ revenue and profit declines mainly reflected comparison to a strong Q3 2012 which included “The Dark Knight Rises” as well as lower TV revenue from theatrical product. In addition, subscription video-on-demand revenue was lower in the quarter as availability of SVOD rights from The CW moved to the fourth quarter. Meanwhile, the studio boosted TV licensing revenue primarily due to the initial domestic off-network availability of “The Middle.”

In the quarter, Warner Bros. got help with the release of two sleeper hits: “The Conjuring” and “We’re the Millers,” which have grossed $310 million and $260 million, respectively, through Nov. 3. In addition, studio’s critically acclaimed “Gravity” has pulled in $430 million at the box office. Bewkes called out next month’s debut of Peter Jackson’s “The Hobbit: The Desolation of Smaug,” the second installment in the franchise.

The cable group, comprising Turner Broadcasting System and HBO, turned in revenue of $3.5 billion, up 5% from the year earlier. The division posted 4% growth in subscription revenue — mainly from higher U.S. carriage fees and international growth — and an 11% increase in ad revenue. Operating income increased 20% to $1.5 billion, partly offset by increased restructuring and severance expenses of $36 million.

On the publishing front, Time Inc. continued to falter. Revenue decreased 2% to $818 million, reflecting declines of 4% ($12 million) in subscription revenue and 2% ($7 million) in ad sales. Operating income dropped 9% to $115 million.

Time Warner now expects to complete the spinoff of Time Inc. in the second quarter of 2014; Bewkes said a filing on the transaction will be coming in the next few weeks. Time Warner’s board approved plans to spin off Time Inc. in March.

Also Wednesday, Time Warner reaffirmed 2013 full-year business outlook, projecting “mid-teens” percentage growth in adjusted EPS compared with 2012 adjusted EPS of $3.24.

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