Turner Broadcasting System, which is closing in on a deal to acquire Castle Rock Entertainment and possibly New Line Cinema as well, Wednesday posted solid operating gains for its second quarter ended June 30.
The company reported that consolidated revenue increased 19% in the quarter to $ 487 million, from $ 410 million in the year-earlier period. Operating profit totalled $ 97 million, an increase of 9% over last year’s $ 90 million.
Despite those gains, net income slipped 10% to $ 31 million or 12 cents per share, from $ 35 million (14 cents) in the same period in 1992. The company said the pullback was due to an increase in its net income tax provision (that increase is a result of higher pretax income this year and certain non-deductible international costs).
Wall Street pleased
Wall Street analysts said the numbers were generally in line with their expectations and seemed pleased with the results. “There were no surprises here, ” said Morgan Stanley analyst Alan Kassan. “This was a good solid quarter,” added pundit Tom Wolzien of Bernstein Research.
But even as analysts were poring over the latest results, Wall Street investment bankers continued speculating about what form a potential deal for either of the independent film companies might take.
While Turner has the wherewithal to pursue a cash deal, most believe the company — with 139 million Class B shares outstanding — would pursue a stock swap in the $ 400 million range.
All agree that Time Warner — which with Tele-Communications Inc. controls 87 % of Turner’s convertible Class C shares — remains the real key to any potential deal. TW has publicly stated that it would like to “monetize,” or cash in, its holdings in Turner, and many believe this deal could conceivably put that ball in motion.
Turner — for its part — refused to comment to analysts on either potential deal during a conference call discussing its operating results.
Concerning the company’s financials, TBS chairman and prexy Ted Turner noted in a release that advertising and subscription revenues grew 14% and 17%, underscoring the strength of the company’s programming services.
Entertainment Segment revenue advanced $ 35 million, or 17%, primarily due to a $ 21 million increase in advertising revenue. The company said the revenue increase was due to more sports programming aired on each network. TNT subscription revenue rose $ 7 million, largely due to a per-home charge increase.
Operating profit for the segment was $ 69 million, 14% higher than in 1992. Revenue increases were partially offset by higher sports programming costs associated with the telecast of more NBA games, increased agency commissions, increased marketing expenses and the inclusion of the Cartoon Network, which launched in the fourth quarter of 1992.
Revenue for the News Segment rose $ 19 million, or 15%. Advertising revenue for the segment rose 14% to $ 83 million, primarily due to an increase in the amount charged per thousand viewing homes domestically. Subscription revenue was up 15% to $ 56 million.
Operating expenses and selling, general and administrative expenses rose only 13%, or $ 11 million, resulting in an increase in operating profit in the segment of $ 8 million, or 18%. Syndication and Licensing Segment revenues increased to $ 49 million, a $ 13 million increase over 1992, primarily due to increased homevideo revenue. Despite the revenue increase, the segment recorded an operating loss of $ 10 million from increased expenses, mostly in reserves for bad debts, homevideo sales cost and programming expenses.
Turner pointed out that equity in earnings of unconsolidated entities decreased $ 7 million.
Despite the strong operating results and takeover speculation, Turner’s Class B shares lost 5/8 to lose Wednesday at 21 5/8.