NEW YORK (CNNMoney.com) -- Time Warner Inc. on Wednesday recorded its highest quarterly profit in company history, easily beating Wall Street's forecasts.
The New York-based parent company of CNNMoney.com and Fortune continued to benefit from a strong cost-cutting initiative, part of which included spinning off its AOL and Time Warner Cable divisions.
Cost-cutting helped the company's core television, film and publishing businesses record much higher profits, and advertising sales grew at all three divisions as well.
"Time Warner is off to a great start in 2010, delivering record financial results for our first quarter," said Jeff Bewkes, Time Warner's chief executive, on a conference call with analysts. "The advertising recovery benefited both Turner and Time Inc."
For the full year, Time Warner said it expects growth in adjusted earnings per share to be "at least in the mid-teens" on a percentage basis after posting adjusted earnings of $1.83 per share for 2009. Last quarter, the company said it expected growth to be "in the mid-teens."
The company said its guidance may prove to be a bit conservative, but it was reluctant to raise its outlook so early in the year.
Shares of Time Warner (TWX, Fortune 500) slipped less than 1% on Wednesday as the larger stock market sold off, but Time Warner's stock was down far less than rivals CBS (CBS, Fortune 500), Viacom (VIA), Disney (DIS, Fortune 500) and News Corp (NWS, Fortune 500). The company's shares have risen 10% this year and doubled since last February.
"These were just outstanding results, and they're being rewarded for it," said David Miller, analyst at Caris & Co. "You can make the case that the ever-so-slight tweak to the guidance is a little bit more bullish, but the fact is that mid-teens growth is already in the bag."
The company said its net income rose to $725 million, or 62 cents per share, up 10% from a year earlier. Adjusted operating income, a commonly used profit metric for media companies, rose 37% to $1.4 billion, or 61 cents per share, the highest in Time Warner's history.
Analysts polled by Thomson Reuters, forecasted earnings of 48 cents per share.
Sales for the company rose 5% to $6.3 billion, topping analysts' forecasts of $6.25 billion. That marked the highest rise in revenue since the second quarter of 2008. Advertising sales were up company-wide for the first time since the third quarter of 2008.
Revenue was mostly boosted by the company's television networks, which include CNN and other Turner programming. Sales grew 9% on a 7% rise in cable subscriptions and a 9% rise in advertising sales.
Ratings at Turner were all up, except for CNN, but Bewkes noted that on the whole they're "not yet where we want them to be." At the same time, Bewkes said recent announcements from Turner will put the networks in a better position in the future.
The earnings news follows two big announcements from Turner in April: The network's TBS station signed former "Tonight Show" host Conan O'Brien to host an 11 p.m. talk show; and three Turner networks will air coverage of the NCAA men's basketball tournament for the next 14 years, starting in 2011.
Bewkes also said that the company is in talks with CBS News and other news organizations about a possible news-gathering partnership. He said a deal within a year is "entirely possible," but nothing was imminent.
Time Warner's publishing division, Time Inc., however, saw sales slip 1%, despite a 5% rise in ad sales and 2% increase in revenue from subscriptions. The first quarter marked the first time in two years that advertising sales grew at Time Inc. Revenues slipped primarily due to the impact of the sale of Southern Living At Home in the fall.
The company's filmed entertainment segment, which includes film studio Warner Bros., also performed well in the quarter. Revenue rose 2% in the division, led by strong DVD sales of "Sherlock Holmes" and best picture Oscar nominee "The Blind Side," as well as box-office sales of "Valentine's Day."
Rumors have swirled about a possible takeover of struggling movie studio MGM. Bewkes said Time Warner is "not averse to putting capital to work, but we'd have to be pretty confident about getting a strong return from it." Bewkes noted that Time Warner has walked away from negotiations in with MGM in the past.
In the first quarter, Warner Bros. inked new distribution agreements with Blockbuster (BBI, Fortune 500), Netflix (NFLX) and Coinstar's (CSTR) Redbox, which the company said will help boost DVD revenue going forward.
The deal with Blockbuster gives the movie rental chain exclusive access to Warner Bros. DVDs for the first 28 days after their release in exchange for higher licensing fees. Netflix and Redbox customers will have to wait a month, but DVD rentals from those companies produce lower revenue for Time Warner.
Bewkes, who orchestrated the paring down of Time Warner to its content-providing core, said the company has made "meaningful progress" in meeting its turnaround goals. The CEO pointed to the NCAA, Conan O'Brien and movie distribution deals as examples.
Time Warner's report follows rival News Corp., which also reported rising profit and sales Tuesday night. With rising advertising sales in print and television, the hard-hit media industry appears to be in a recovery.
Kyle Bass is the founder and chief investment officer of Hayman Capital Management. More
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