CNN Leads Time Warner Inc. Back to Sales Growth

By Markets Fool.com

Image source: Getty Images.

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Less than two weeks after announcing its intent to be acquired by AT&T (NYSE: T), media giant Time Warner (NYSE: TWX) posted a rebound in its sales growth and a huge increase in profits.

Here's how the third-quarter results compared to the prior-year period:

Metric

Q3 2016 Actuals

Q3 2015 Actuals

Growth (YOY)

Revenue

$7.17 billion

$6.56 billion

9%

Net income

$1.47 billion

$1.04 billion

41%

Earnings per share

$1.87

$1.26

48%

YOY = year over year. Data source: Time Warner's financial filings.

What happened this quarter?

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Time Warner's diverse approach to monetizing content shined in the quarter as revenue rose 9%, reversing the prior quarter's 5% decline. All three of its operating divisions -- Turner Broadcasting System, HBO, and Warner Bros. -- pitched in significant sales and profit growth.

Highlights of the quarter included:

  • Turner Broadcasting, which is anchored by pay-TV channels including CNN, TBS, and TNT, grew by 9% for an acceleration over the prior quarter's 6% uptick. Market-beating viewership at CNN was powered by intense interest in the presidential election that offset declining ratings at other networks as the cable TV subscriber pool continued to shrink. Turner's 2% advertising growth beat peer Discovery (NASDAQ: DISCK), which earlier in the week posted a 3% ad sale decline.
  • The HBO service logged 4% higher sales but endured a slight decrease in profitability as programming costs spiked higher by 15%.
  • A strong season at the box office helped Warner Bros. studios grow 7% despite weaker video game revenue. Suicide Squad, The Legend of Tarzan, and Sully all contributed to gains and helped push operating income 11% higher.

What management had to say

CEO Jeff Bewkes sounded encouraged by the improving operating trends across the company's business divisions. He credited the growth to a focus on producing engaging content. "We had a strong third quarter," Bewkes said in a press release, "which keeps us on track to exceed our original 2016 outlook and underscores our leadership in creating and distributing the very best content."

To highlight the depth of that leadership, the company noted HBO's 15th consecutive year of Emmy award dominance, CNN's prime ranking in the news business, and the fact that TBS, TNT, and Adult Swim are three of the top five cable networks in the 18-49 age demographic.

Commenting on the proposed merger with AT&T, Bewkes said the deal "represents a great outcome for our shareholders and an excellent opportunity to drive long-term value well into the future" and is "the natural next step in the evolution of our business and allows us to significantly accelerate our most important strategies."

Looking forward

Time Warner has good reasons to expect solid growth ahead. Turner Broadcasting should continue to outpace the slowly shrinking industry thanks to a healthy mix of news, sports, and scripted entertainment.

HBO's results, meanwhile, will be volatile from quarter to quarter as programming expenses flow out in large chunks that don't always sync up with subscriber gains. But its content quality lead looks safe, which gives it plenty of room to raise average subscription prices over time.

Fantastic Beasts and Where to Find Them could be a hit later this month. Image source: Time Warner.

Finally, Warner Bros. is looking forward to the theatrical release of J.K Rowling's Fantastic Beasts and Where to Find Them, which could set global records following its Nov. 18 launch. That studio division will suffer from a large decline in video game sales in 2016, relative to last year's bumper results, but the movie side is picking up most of that slack, and that shows why Time Warner enjoys having such a diverse group of distribution outlets for its content.

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Demitrios Kalogeropoulos has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Discovery Communications. The Motley Fool recommends Time Warner. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.