Time Warner sees brighter future

Media conglomerate expects to restructure its Time Inc. publishing unit in the current quarter, raises guidance after better-than-expected quarter.

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By David Goldman, CNNMoney.com staff writer

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Time Warner said its business outlook has improved on a better-than-expected quarter.
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NEW YORK (CNNMoney.com) -- Time Warner Inc. said Wednesday that its business outlook has improved, after the company posted quarterly profit and sales that fell from year-ago results but beat Wall Street's forecasts.

The recession has cut into the company's media subscriptions and advertising sales, which are its primary revenue streams. But its television and film units outperformed expectations in the quarter, raising the company's hopes that it has turned a corner.

"Time Warner is firmly on track to post solid results this year in spite of the tough economic environment," said Jeff Bewkes, Time Warner's CEO, on a conference call with investors.

The media conglomerate raised its full-year guidance, saying it expects to earn $2.05 per share for 2009. That's better than the $1.98 per share estimate the company provided in April and is slightly higher than analysts' consensus expectation of $2.02 per share.

The outlook excludes the effects of a $100 million restructuring at publishing unit Time Inc., which the company expects to incur in the current quarter. Time Warner confirmed that the cost-cutting would come in the form of layoffs at Time Inc. during this quarter, but the company didn't disclose the number or timing of those job cuts.

A source familiar with the job cuts said the company had offered voluntary buyouts Tuesday night to Time Inc. employees who are members of the Newspaper Guild. Most of those employees work for Fortune, Fortune Small Business, Money, Time, Sports Illustrated and People. The company is expected meet with the remaining staff members on Wednesday, with total job cuts reaching about 500, according to the source.

Time Warner also said it still plans to spin off its AOL unit by the end of the year.

The AOL spin off will follow other recent moves at Time Warner to focus on the company's core businesses. Earlier this year, the company completed a spinoff of its cable service provider Time Warner Cable (TWC), and the company began to reorganize Time Inc. in late 2008, laying off 600 and stopping publication of a handful of magazines in the process.

"I'm confident that the new content-focused Time Warner will be well positioned to deliver steady and attractive stockholder returns in 2010 and beyond," Bewkes added.

Shares of Time Warner (TWX, Fortune 500) fell 1% in premarket trading.

Income falls on AOL, Time Inc: The New York-based parent company of CNNMoney.com and Fortune said its net income fell to $662 million, or 56 cents per share, down 38% from a year earlier. Results included a charge of 5 cents per share.

Without the charge, Time Warner said it earned 61 cents per share. Analysts polled by Thomson Reuters, who typically exclude one-time items from their estimates, forecasted earnings of 53 cents per share.

The company said adjusted operating income before depreciation and amortization (adjusted OIBDA), a commonly used profit metric for media companies, fell 9% to $1.8 billion, topping analysts' expectations of $1.7 billion. Adjusted OIBDA declines at AOL and Time Inc. negated moderate growth at the company's television networks and film units.

Profit rose modestly in the company's TV networks and film units, but earnings were halved at AOL and Time Inc.

Advertising, magazine sales tumble: Sales for the company fell 6% to $7.13 billion, just topping analysts' forecasts of $7.07 billion.

Revenue fell in every segment except for the company's TV networks unit. Network sales rose 5% in the quarter, despite a 1% dip in advertising sales from the same period a year ago.

The biggest decline in sales came from the Time Inc. unit, in which revenue dove 18%. Ad sales fell 22% at the company's publishing arm, and subscriptions were down 24% in the quarter.

The company's filmed entertainment segment, which includes film studio Warner Bros., posted sales that fell 4% in the quarter. That decline was mostly due to a difficult comparison to the same period last year, which brought in hefty revenue from the blockbuster "The Dark Knight." The company said the new Harry Potter movie and "Final Destination" performed very well, and it was still taking in carryover ticket sales from the summer blockbuster "The Hangover."

Sales at AOL, which the company has been planning to spin off since May, fell 23% on an 18% decline in online ad revenue.

Time Warner's results come a day after rival Viacom (VIA) reported profit jumped 15%, even as advertising sales slumped.

Also on Wednesday morning, cable provider Comcast (CMCSA, Fortune 500) reported 22.5% earnings growth. Comcast is reportedly in negotiations to buy General Electric's (GE, Fortune 500) NBC Universal unit, but some analysts believe Time Warner is also in the running for the Peacock Network. To top of page

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