Time Warner Inc. Boosts Fourth-Quarter Revenue by 11%

By Demitrios Kalogeropoulos Markets Fool.com

With its deal to be acquired by AT&T (NYSE: T) progressing toward closing sometime in 2017, TV content giant Time Warner (NYSE: TWX) on Wednesday announced fourth-quarter sales and profit increases that reflected solid growth across its content portfolio.

Continue Reading Below

Here's how the headline results compared to the prior-year period.

Metric

Q4 2016

Q4 2015

Year-Over-Year Growth

Revenue

$7.9 billion

$7.1 billion

11%

Net income

$293 million

$857 million

(66%)

EPS

$0.40

$1.06

(62%)

Data source: Time Warner's financial filings.

What happened this quarter?

Softening results out of the Turner broadcasting segment were more than offset by improvements at both the Home Box Office and Warner Bros. divisions.

Continue Reading Below

Highlights of the quarter included:

  • Turner's advertising revenue was flat in the U.S. market, compared to a 2% uptick last quarter, as higher ratings in the CNN-led news business couldn't overcome lower viewership elsewhere. Subscriber figures ticked lower, which pulled global ad revenue down. Yet increased subscription prices kept the Turner business expanding for the quarter.
  • Turner's profitability grew slightly as higher prices more than offset increased programming and marketing costs.
  • HBO logged a 5% boost in subscription revenue thanks to higher average rates in the U.S. market and healthy subscriber growth internationally. Profitability jumped as programming costs declined.
  • Warner Bros., which houses Time Warner's movie and video game studios, enjoyed a 17% spike in sales thanks to the solid theatrical showings from Fantastic Beasts and Where to Find Them and The Accountant. Operating income soared higher by 57% in the division.
  • Time Warner paid down $1 billion of debt, which explains the 66% drop in net income. Adjusting for that outflow, earnings would have bounced higher by 18% to $1.25 per share.

Image source: Getty Images.

What management had to say

CEO Jeff Bewkes highlighted the broader results that showed improvements across each of Time Warner's content segments in 2016. "All our operating divisions increased revenue and profits while also making investments to capitalize on the growing demand for the very best video content and new ways to deliver it to audiences around the world," Bewkes said in a press release.

"We had another very successful year in 2016, demonstrating once more Time Warner's ability to deliver strong financial performance alongside creative and programming excellence," he continued, while citing Warner Bros' leading position in TV content, HBO's first-place ranking in critical awards, and Turner's success at growing audiences at TBS, TNT, and Adult Swim. As for the upcoming merger with AT&T, management said, "We remain on track to close the transaction later this year."

Looking forward

While they wait for the deal to pass through the rest of its regulatory hurdles, investors can expect to see lumpy results out of Time Warner's three biggest divisions in 2017. It's unlikely, for example, that programming costs will continue to trend lower at HBO, and so profitability should contract in the quarters ahead. Meanwhile, falling advertising revenue is worth keeping an eye on at Turner since the company can't rely solely on double-digit jumps in distribution fees to keep the segment growing.

Yet Time Warner overcame similar challenges through the past fiscal year and its broad results demonstrate the power of its diverse approach to monetizing content. Sure, sales and profits were hurt by a falling pay-TV subscriber base and lower video game revenue. But Time Warner offset those headwinds to post a near-$700 million (or 10%) improvement in operating income for the year.

10 stocks we like better than Time Warner
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Time Warner wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of February 6, 2017

Demitrios Kalogeropoulos has no position in any stocks mentioned. The Motley Fool recommends Time Warner. The Motley Fool has a disclosure policy.