AOL Time Warner Posts Mixed Results

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Losses rose slightly at AOL Time Warner Inc. in the third quarter, but the media conglomerate for the most part held its own in a tight economy and an even tighter advertising market.

Overall, AOL Time Warner reported a loss of $996 million, or 22 cents per share, up from $902 million (21 cents) a year earlier. Excluding one-time charges, AOL Time Warner reported cash earnings per share of about 30 cents, beating analysts' consensus estimate of 26 cents per share.

Revenue and cash-flow growth — 6.4 percent and 20 percent, respectively — were in line with earlier reduced guidance.

AOL Time Warner had drastically reduced its previous estimates of 30-percent cash-flow growth and 15-percent revenue growth for the year after the Sept. 11 terrorist attacks and because of the continued advertising slump.

Though third-quarter results showed the impact of the ad downturn — ad sales made up about 21 percent of total revenue, down from 25 percent a year ago — growth at the cable systems and networks helped offset the declines.


AOL Time Warner's cable operations performed well. Cash flow at the cable unit was up 11 percent, to $791 million, and revenue rose 17 percent, to $1.8 billion. Advertising and commerce revenue rose 41 percent, to $175 million, driven mainly by increased advertising associated with new channel launches on the cable systems.

At AOL Time Warner's television networks — including Cable News Network and other Turner Broadcasting System Inc. properties, as well as The WB — cash flow rose to $450 million, up 29 percent from $348 million a year ago.

Revenue rose 4 percent, to $1.7 billion, as subscription revenue growth at the Turner cable networks and Home Box Office Inc. more than offset a 10-percent decline in advertising and commerce revenues at Turner.

"The solid growth this quarter underscores the strength of our subscription business," AOL Time Warner CEO Gerald Levin told analysts during a conference call. "We are successfully holding the line on costs. We have a robust business model built on multiple revenue streams."

Levin again forecasted 20-percent cash-flow growth and 5-percent to 7-percent revenue growth this year. He said he expects cash-flow growth in "double digits" next year.

Most of the cable subscriber growth came from digital (about 350,000) and high-speed data (250,000).

Analysts were split on the performance, with UBS Warburg LLC's Christopher Dixon maintaining a "strong buy" rating and Merrill Lynch & Co.'s Jessica Reif Cohen and Henry Blodgett downgrading to "neutral" from "buy."

Merrill cited lower than expected ad revenue at America Online Inc. The Internet-service provider's $2.2 billion in revenue and $742 million in cash flow fell short of Merrill's targets: $2.3 billion and $914 million.

Dixon said in a report the lower advertising revenue at AOL was expected, and pointed to strong subscriber growth — a 1.3 million-home increase — and AOL Time Warner's overall strong subscription revenue.

It appeared Merrill's downgrade prompted a sell-off. The stock fell more than 8 percent, or $2.69, last Wednesday to close at $30.81. It continued to fall early last Thursday.