Time Warner Earnings: Video Games and "Seinfeld" Drive Strong Quarter

By Keith NoonanFool.com

Time Warner released its second-quarter earnings before Wednesday's market open, delivering salesresults that were better than the average analyst estimate. The company delivered revenue of $7.35 billion, while the average analyst estimate called for $6.9 billion, representing a 6.5% beat there. Earnings per share of $1.16 on net income of $971 millionalso came in significantly above expectations, with the average analyst estimate anticipating quarterly earnings of $1.03, according to The WallStreet Journal.

The resultsTime Warner's $7.35 billion in second-quarter revenue represented an 8% increase in year-over-year sales and a roughly 3.5% increase sequentially. The company reported record adjusted operating income of $1.86 billion, growing roughly 15% year over year, with its Turner and Warner Bros. segments spearheading growth. Net income of $971 million represented a roughly 14% increase from $850 million in the second quarter of 2014.

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The Turner segment delivered roughly 20% adjusted operating income growth, while the Warner Bros. segmentsaw adjusted operating income jumpan impressive 46%. It was the strong performance from these segments that propelled the company's second-quarter results significantly above expectations, while operating income performance from the HBO segment lagged a bit compared to the second quarter in the prior year.

Turner segment boasts strong content performance and decreased programming cost Turner revenues were up roughly 3%, while operating income grew approximately 22% and adjusted operating income was up about 20%. Performance in the segment was propelled by the sale of originalcontent on the Hulu streaming platform, which is co-owned by competitors Twenty-First Century Fox, Disney, and Comcast. Strong content performanceeasily offset a roughly 1%, or $12 million, decline inoverall advertising revenues, but domestic ad sales actually increased due to solid performance from Turner's news channels and the NCAA Basketball Tournament.

Higher subscription revenues also contributed to segment gains, and a 9% drop in programming costs contributed to operating margins improvement.Here's CEO Jeff Bewkes on the impressive results from the Turner segment:

Video games and Seinfeld SVOD deliver great quarter for Warner Bros.TheWarner Bros. segment delivered the company'sbiggest second-quarter sales increase, with quarterly revenues growing roughly 15% to approximately $3.3 billion. Operating income also saw impressive growth, with the second quarter's adjusted and unadjustedfigures bothup roughly 46% year-over-year. The strong segment results were driven by impressive performance from the company's video games, as well as television content licensing,as revenues from theatrical and home entertainment releases declined due to a less favorable lineup.

Video games were an especially strong performer for the company, with Mortal Kombat X standing as the best-selling video game through the first half of 2015, andalso taking the top sales spot in July. The company's Batman: Arkham Knight also sold very well. Warner looks to have the opportunity for ongoing growth in video game sales, as it also owns the popular LEGO franchise, the Mortal Kombat series looks strong, and the company has the potential to expand its use of DC Comics characters.

Segment performance was also boosted by the licensing of Seinfeld on Hulu. The incredibly popular sitcom is still showing staying power more than 17 years after the airing of its final episode, and Hulu is currently the only subscriptionstreaming platform on which the show can be watched.

Home Box Office operating income dips due to HBO NOW costsThe 1% increase in HBO revenue came as a result of increased domestic subscription rates. Subscription revenues grew roughly 4%, offsetting a7% decline in content revenues. The slight increase in sales was not enough to offset theincreased marketing and technology costs associated with the launch of the company's HBO NOW streaming platform, which were the primary reasons for the 8% adjusted operating income decline. While the introduction of the streaming service contributed to a margin decline in the quarter, it has the potential to meaningfully improve segment performance down the line.

HBO has an undeniably strong content lineup, and offering its shows outside of the traditional cable subscription package creates the opportunity to reach a wider audience, as well as a way to weatherturbulence in the cablelandscape.

The article Time Warner Earnings: Video Games and "Seinfeld" Drive Strong Quarter originally appeared on Fool.com.

Keith Noonan has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Walt Disney. 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.

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