Time Warner saw a year-over-year decline in operating income in the first quarter largely due to higher programming and marketing costs at Turner and HBO.
Time Warner reported revenue of $8 billion, a 3% increase from the year-ago quarter. Adjusted operating income fell 8% to $2 billion. Earnings per share came in strong, up 15% from year-ago to $2.07, topping analysts’ expectations.
The results come as Time Warner is awaiting a decision on the fate of its $85.4 billion merger with AT&T, which the Justice Department has sued to block. The trial in Washington, D.C. is heading toward a close early next month.
Time Warner reaffirmed its full-year guidance for adjusted operating income growth in the high single digits. Gains in subscription revenue at HBO (up 10%) and Turner (up 8%) were a positive sign for the cable units. Time Warner said HBO saw gains in its domestic subscriber base, another welcome sign for investors worried about the health of the pay-TV eco-system.
However, Turner saw a 21% spike in programming costs due to the cost of NCAA tournament rights and higher original programming costs at Turner’s entertainment cablers including TNT and TBS. Adjusted operating income at Turner was down 5% to $1.1 billion.
Programming expenses at HBO were up 8% while adjusted operating income fell 10% to $535 million.
“We’re off to a strong start to 2018 and we remain on track to meet the financial goals we laid out at the beginning of the year, as we continue to execute our strategic objectives, including investing in and delivering the most compelling content to audiences around the globe and across platforms,” Time Warner CEO Jeff Bewkes said. “We look forward to the resolution of the legal challenge to our pending merger with AT&T and remain excited about the benefits of the merger, such as the potential to further strengthen our businesses by accelerating our innovation and increasing our ability to connect more directly with consumers.”
Warner Bros. posted declines in the quarter due to tough comparisons to the year-ago period, when the studio had “Kong: Skull Island” and “Lego Batman Movie” in theaters and it inked domestic TV content licensing pacts. Revenue for the studio was down 4% in the quarter to $3.2 billion while adjusted operating income fell 25% to $383 million.