NEW YORK (CNN/Money) -
Time Warner Inc. saw operating income decline from year-earlier levels in line with Wall Street forecasts, as the world's largest media company said Wednesday it expects improved results this year in most operations except its movie studios.
The company said it earned about $687 million, or 15 cents a share, in the most recent period, excluding special items but including discontinued operations, down from 28 cents a share it earned excluding special items a year earlier. Results met the consensus forecast of analysts surveyed by earnings tracker First Call.
The company said excluding results from its Warner Music division, which it has agreed to sell for $2.6 billion, the company earned $1.1 billion, or 24 cents a share, narrowing the drop in earnings. It said its overall earnings before depreciation, amortization and special items was down about 2 percent to $2.4 billion.
Its Internet service provider AOL had earnings on that basis fall 14 percent to $301 million, as its loss of advertising revenue and paying subscribers continued in the quarter. Revenue in the unit fell 7 percent, the only unit that reported a decline in revenue, though revenue from music was not reported.
Its networks unit saw earnings on that basis fall 9 percent in the quarter to $602 million, and publishing saw those earnings off 5 percent to $376 million. But its studios saw earnings on that basis up 6 percent to $417 million, while its cable operations saw earnings gain 8 percent to $797 million.
Overall revenue at the company rose 6 percent in the quarter to $10.9.
Much of the loss in the music operations is due to a $1.1 billion writedown in the value of assets there after considering transaction costs. But First Call is not yet excluding music unit results.
Including all items, the company posted fourth-quarter net income of $638 million, or 14 cents a share, a large improvement from the net loss of $44.9 billion, or $10.04 a share, in the year-earlier period. That result followed about $46 billion in writedowns for the drop in value of the company's units since the 2001 merger of America Online and Time Warner.
Debt reduction ahead of schedule
The company said proceeds from the sale of its music unit will allow it to meet its debt reduction goal almost a year ahead of schedule. The sale is expected to close in the first quarter, and when it does net debt, which reflects both long-term and short-term debt less cash, should be about $20 billion, its goal for the end of 2004.
The company had net debt of $22.7 billion, down from $25.8 billion at the end of 2002. Besides the music unit, the company sold its stake in cable network Comedy Central and its DVD and CD manufacturing unit during 2003.
Chairman and CEO Richard Parsons said the company will start to look at possible investments outside of Time Warner now that it has gotten debt levels to the target, but suggested no purchase will come soon.
"We're now in position to look outside our company for promising investments. We'll employ the same focus and same discipline we used in debt reduction program and we'll be patient,"he told analysts Wednesday. "I'm not worried about our new found capacity burning a hole in our pocket."
The company said it expects the growth rate in earnings excluding special items, depreciation and amortization to be greater in 2004 than in 2003 in each of its units other than filmed entertainment. That unit had several huge box office hits in 2003, including the last "Lord of the Rings" movie which is poised to become the second film to reach $1 billion in box office sales. The studios unit also produces the TV show "Friends," which concludes its final season in May.
Growth in earnings excluding depreciation, amortization and special items should be from high single to low double digits on a percentage basis, according to the company's guidance, up from $8.8 billion earned in 2003. That guidance excluding results from the music unit. Its Internet service provider unit America Online, which had essentially flat earnings on that basis of $1.5 billion last year, should see low double digit growth this year, according to the company.
Chief Financial Officer Wayne Pace said some of America Online's projected profit growth will come from the company reversing the long-term decline in advertising revenue and posting increased ad revenue. Much of that gain will come its agreement with Internet search engine Google for paid searches. The company said that while ad revenue of $204 million was down 36 percent in the quarter compared to a year earlier, it was up from third quarter ad revenue of $178 million.
Pace said the unit should also benefit from improved results at AOL Europe, which posted a narrow fourth quarter profit rather than the loss of a year earlier, as well as continued gains its premium and high-speed Internet services to customer. And he said much of improved profit outlook at AOL will come from reducing costs, particularly network costs, as the company continues to lose the lower-profit dial-up Internet customers.
"I think they've set the stage in a very positive fashion to now be judged on their fundamental performance as opposed to the historical nightmares relative to the merger and online division," Harris Nesbitt Gerard analyst Jeffrey Logsdon told Reuters.
Besides AOL and filmed entertainment, which includes Warner Bros. and New Line Cinema, the company's units include Time Warner Cable, a publishing unit that includes Time Inc. magazines, networks including CNN, TNT and TBS, and Internet service provider America Online. CNN/Money is also a unit of the company.
Shares of Time Warner (TWX: down $0.75 to $18.06, Research, Estimates) were lower in early trading Wednesday following the report.
Reuters contributed to this report
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