AOL Time Warner Warns of Lower Earnings

Internet and media giant AOL Time Warner Inc. said Monday it expects lower-than-expected 2001 cash earnings and slower revenue growth due to the decline in advertising and costs associated with the attacks on New York and the Pentagon. 

The warning comes as the company's stock rallied about 9 percent on Monday as investors came to terms with the likelihood the company would miss its targets. Its shares closed up 8.9 percent, or $2.65, at $32.50, recouping some of the 13 percent loss it has seen since the attacks on Sept. 11. 

For 2001, the company said it sees EBITDA (earnings before interest, tax, depreciation and amortization) growth in the 20 percent range and revenue growth of 5 to 7 percent. 

Up until now, AOL Time Warner had stuck by its projections to grow 2001 EBITDA 31 percent, to $11 billion, and had said that it would grow revenue by as much as 10.5 percent, to $40 billion. 

The Internet and media giant cut jobs at its AOL unit in August and raised the price of its flagship Internet service in a move that analysts had expected to act as a buffer against the deteriorating ad climate. 

Still, many analysts had begun to question whether the company would be able to hit its aggressive targets amid economic uncertainty, and the recent attacks exacerbated the already weak ad picture. 

As a result, many analysts cut their forecasts in the last week. Both SG Cowen and Merrill Lynch cut their expectations and were forecasting 20 percent EBITDA growth and 6 percent revenue growth in 2001. The two firms had both anticipated 21 percent EBITDA growth in 2001. 


AOL Time Warner said in a statement that it expects double-digit EBITDA growth in 2002 but did not comment on 2002 revenues. 

``What we are not seeing is a clear indication for the 2002 revenue numbers and that will continue to be somewhat of a question mark,'' said Youssef Squali, analyst at FAC/Equities. 

Wall Street analysts on average expected the company to post earnings of $1.27 a share and revenue of $37.94 billion, up 4.7 percent from a year-earlier, in 2001, according to Thomson Financial/First Call. 

Analysts did not expect the warning to create a sharp drop since recent sessions have already factored in the numbers. In after-hours trade, the stock was trading at $31.51, down from its $32.50 close. 

Many analysts still maintained that AOL Time Warner was attractive at current levels and said its subscriptions business provided it with a bit more insulation than some of its peers. 

``Certainly some of the luster has come off, but 20 percent growth is nothing to sneeze at,'' said Phil Leigh, analyst at Raymond James.