Time Warner Posts Strong Q2

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Time Warner Inc. reported strong second-quarter results Wednesday, spurred by gains at its cable networks and filmed entertainment divisions.

Overall, Time Warner reported revenue growth of 5% to $11.6 billion and adjusted operating income before depreciation and amortization -- AOIBDA, a measure of cash flow -- grew about 4% to $3.2 billion.

Leading the charge was the cable networks division, which includes Turner Broadcasting System and Home Box Office. Revenue at the cable networks rose 9% to nearly $2.83 billion in the quarter and AOIBDA rose 15% to $860 million. Cable network results were bolstered by an 11% gain in advertising revenue.

On a conference call with analysts, Time Warner CEO Jeff Bewkes said that the networks were helped by big ratings gains at CNN, TBS and TNT.

Bewkes added that ratings in key primetime demographics were up more than 20% at CNN, while its competition has sustained ratings losses. Bewkes said that while the presidential election has helped CNN’s ratings, he noted that CNN’s current ratings were up 20% compared to the second quarter of 2004, the last presidential election.

“We’re also taking share,” Bewkes said.

The company also reiterated its full-year guidance, adding that it is confident it will be able to reach free cash flow of $4.5 billion or greater in 2008 as well as earnings per share of between $1.07 and $1.11 each, representing double-digit growth from the prior year.

Bewkes said that the three main objectives – making sure each division had the proper structure; improving Time Warner’s capital position and operating performance; and actively managing the balance sheet – he set for the company when he assumed the CEO role in January

On the restructuring front, Bewkes said that the TWC separation is on track as is the separation of its AOL access business. The separation of the access business should be completed by the beginning of 2009, Bewkes said.

Bewkes wouldn’t talk about specific acquisitions, but said that the media giant would look at all opportunities. But he said that any acquisition would have to show a better return than the company’s internal use of that capital, either through growing the business or buying back its own stock.

“With the current price of our stock and the earnings multiples attached to that, that is a high hurdle to meet in acquisition assessment,” Bewkes said.

Time Warner stock is trading at about 6 times estimated 2009 cash flow.

Time Warner did not repurchase any of its stock in the second quarter, but Bewkes said that was because of the overall state of the market. The Dow Jones Industrial Average fell from 12,654.36 on April 1 to 11,287.56 on June 30, a 10.8% drop.

“We do consider the stock to be extremely attractive at its current levels, but in light of all that we had going on, we decided it would be prudent to stay out of the market,” Bewkes said on the call.

Bewkes also added that next year, all of its Warner Bros. studios movies – with the exception of the Harry Potter franchise – will be released to pay-per-view VOD on the same day they are released on DVD. 

Time Warner shares were down 1 cent to $14.87 in afternoon trading Wednesday.           

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