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Time Warner beats Street
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July 18, 2000: 9:22 a.m. ET
Publishing, cable networks, music units propel revenue, boost cash flow
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NEW YORK (CNNfn) - Gains posted Tuesday by Time Warner Inc.'s cable networks and publishing units, propelled by a hearty advertising market, helped boost its second-quarter revenues by 9 percent and to outpace Wall Street expectations by 3 cents a share.
For the three months ended June 30, New York-based Time Warner Inc. (TWX: Research, Estimates) reported that its net income fell 3 percent to $145 million, or 11 cents a share, from $150 million, or 12 cents, a year earlier.
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VIDEO
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CNNfn's Greg Clarkin talks with Time Warner's Chairman and CEO Gerald Levin.
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Analysts polled by earnings tracker First Call had expected 8 cents a share. The results beat the most aggressive forecasts, which ranged from 7 cents a share to 10 cents a share.
Cash flow before special items at Time Warner -- the largest media conglomerate in the world with properties stretching from movies and theme parks to TV networks and recorded music -- grew 16 percent to $1.4 billion from $1.2 billion a year earlier. Analysts typically watch cash flow -- also known as earnings before interest, taxes and amortization (EBITA) -- to gauge performance at media companies.
Time Warner, the parent of CNNfn.com, said revenue jumped 8 percent to $7.1 billion from $6.5 billion. The Warner Brothers Network led the revenue growth, increasing 31 percent to $109 million, while revenue for cable networks rose 13 percent to $1.7 billion.
"I am pleased with our record operating results and strong EBITA growth rate of 12 percent for the first half of 2000, which puts us on track for another record-breaking year," Time Warner Chairman and CEO Gerald Levin said.
Analysts smiled on the quarter, citing positive returns from the cable segments and unexpectedly strong returns from the music unit.
But investors were not as enthusiastic about the results. Time Warner (TWX: Research, Estimates) shares fell 1-1/16 to 88-1/8 in late afternoon trading, although the stock in recent months has closely tracked shares of merger partner America Online, which also fell 1-15/16 to 61-1/16 Tuesday.
Time Warner is in the process of being purchased by AOL (AOL: Research, Estimates). Levin renewed his expectations that regulatory agencies will give their approval and enable the deal to close by the end of this year.
Strong results at cable, music, publishing units
The cable networks reported that profit, before special items, jumped 15 percent to $422 million from $366 million, and from $364 million in the first quarter.
HBO's cash flow growth during the quarter reflects increased subscription revenues for HBO and Cinemax networks, while its Turner Cable Networks division had 16 percent cash flow growth from strong revenue gains, partially offset by lower results at its World Championship Wrestling franchise.
 Cash flow at the publishing unit rose 14 percent to $226 million, driven by strong double-digit advertising revenue gains, which were led by Fortune, In Style, Time, People and Teen People magazines.
Top-selling albums from artists such as matchbox twenty, Kid Rock, Red Hot Chili Peppers, and Busta Rhymes spurred an 11 percent rise at Warner Music Group to $98 million, the company said. The results represent a resurgence in the unit, which reported cash flow of only $80 million in the first quarter.
The WB Television Network's cash flow loss improved to $21 million from a loss of $30 million. The current quarter results reflect improved broadcast revenue, offset in part by higher programming costs associated with an expanded programming schedule.
Barrington Research analyst James Goss said the losses at "the WB" are not unusual since the network still is establishing its presence.
"They are still in an establishing mode with the WB, and they will incur startup losses," he said. "And the losses will be reinforced when they add another night [of programming], but they need to do that to get where they want to go.
The company's movie division scored cash flow, excluding one-time charges, of $199 million, up 3 percent from $193 million a year ago. The second-quarter results benefited from 19 percent cash flow growth at Warner Bros., but were offset in part by lower results at New Line, which last year produced the hit film "Austin Powers."
The company expects to reap significant box office success from its current hit, "The Perfect Storm," which generated $129 million in ticket sales through its first 17 days of release.
Road Runner to be restructured
During a conference call with analysts, Time Warner's Levin said the company plans to restructure its partnerships in its Road Runner high speed cable Internet service to allow multiple online service providers access to conduit sooner than previously anticipated.
Road Runner, which links about 900,000 customers to the Internet at speeds up to 50 faster than via telephone connections, is a joint venture among the units of Time Warner, AT&T, Microsoft, Compaq and Advance/Newhouse.
Levin said that the decision to restructure Road Runner comes following the U.S. Justice Department's requirement that AT&T sell its stake in Road Runner within 18 months as a condition of its $50 billion acquisition of MediaOne.
AT&T owns a controlling stake in ExciteAtHome, Road Runner's rival in providing Internet access through cable lines.
"As a result of this activity, we have decided to restructure the Road Runner partnership and we have now begun that process of working with our cable partners," Levin told analysts.
"With this restructuring we will substantially speed up the ability of customers to chose from multiple ISP, because the exclusivity period in Road Runner was scheduled to last ... until the end of 2001," he added. 
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