Time Warner Results Top Q3 Forecasts, Lifted by HBO, Warner Bros. Games

Time Warner beat Wall Street expectations on revenue and earnings for the third quarter of 2015, with the company citing growth at HBO and Warner Bros. — particularly in the latter’s video-game division.

The company reported revenue of $6.6 billion and earnings per share of $1.22 for the period ended Sept. 30. Analysts had expected EPS of $1.09 on revenue of $6.5 billion.

The results show “how our investments in great content have been paying off in our traditional television businesses, as well as in newer areas such as video games,” chairman and CEO Jeff Bewkes said in announcing the results.

Overall revenue for the period increased 5% year over year due to growth at Warner Bros. and HBO. That was partially offset by a 2% decline at Turner Broadcasting stemming from lower ad sales and a drop in subscription VOD revenue, the company said.

Warner Bros. revenue grew 15%, to $3.2 billion, with an increase in video game revenues primarily due to the releases of “Lego Dimensions” (pictured above) and “Mad Max,” as well as carryover revenues from several titles, including best-seller “Mortal Kombat X” and “Batman: Arkham Knight.”

Bewkes also pointed out that Warner Bros. Television has the two top freshman shows this season NBC’s “Blindspot” and CBS’s “Supergirl,” joining returning hits like “The Voice” and “The Big Bang Theory.” WB’s TV licensing revenues benefited in Q3 from the initial cable and off-network availability of “2 Broke Girls” and the initial cable availability and SVOD licensing of “Person of Interest.”

On the theatrical side, Warner Bros. had several releases that disappointed at the box office in the quarter, including “Magic Mike XXL,” “Vacation,” “The Man From U.N.C.L.E.” and “We Are Your Friends.”

HBO drove sales up 5% to $1.4 billion, thanks to a 4% rise in subscription revenue and higher domestic content-licensing revenues. The premium cabler’s operating income zoomed up 37%, to $519 million, as HBO cut expenses from layoffs and had lower distribution and programming costs. HBO’s programming spending decreased 6% because of lower movie-output deal costs, while it incurred higher marketing and technology costs related to the HBO Now standalone streaming service.

Still, HBO’s sub revenue has been growing at around 4% for some time, indicating the cabler’s over-the-top strategy hasn’t expanded its footprint to date. “We have long held that investors hoping to see acceleration from HBO Now would be disappointed,” Bernstein Research’s Todd Juenger. “That seems to be the case here.”

At Turner, revenue dropped 2% to $2.4 billion, but operating income more than tripled, to $1.1 billion. The profit increase was driven by a 45% decline in programming costs, mainly because in the year-prior quarter the company took a $482 million write-down “related to Turner’s decision to no longer air certain programming.” The cable networks group registered a decline in U.S. subscribers, which was partially offset by higher carriage fees from pay-TV operators. Turner’s U.S. ad revenue was flat for Q3, with the company citing the overall 1% year-over-year decline on the impact of foreign-exchange rates and the absence of NASCAR programming.

Time Warner also reaffirmed its 2015 full-year outlook, forecasting EPS to be in the range of $4.60 to $4.70. That would be an increase of 11%-13% over EPS $4.15 reported for full-year 2014.

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