Time Warner Earnings Up 5.2 Percent, Announces $5B Stock Buyback

Time Warner Inc. (TWX) posted a 5.2 percent rise in quarterly profit Wednesday, but shares fell as much as 4 percent after the company cut the outlook for AOL as the Internet division invests to improve its services.

Time Warner also announced a $5 billion stock repurchase program, which disappointed some analysts who had been looking for a buyback of above $10 billion. The company has essentially completed a previously announced $20 billion buyback.

Executives said AOL's advertising growth would be slower than overall industry rates in the second half as they aimed to free up the division to make investments and improvements to the business, which was restructured last summer.

AOL's advertising sales in the second quarter rose 16 percent from a year ago, with growth slowing abruptly from the 40 percent-plus seen in the past four quarters. Wall Street had expected on average ad growth in the mid-20 percentage range.

Time Warner Chief Executive Richard Parsons said growth declined as users naturally take time to become accustomed to "significant changes" to AOL's services, such as its autos and health channels and e-mail products.

Part of the shortfall also came from some companies that shifted their marketing dollars to third-party advertising networks, which place ads on a variety of Web sites, Parsons said. He added that AOL's Advertising.com, a third-party online ad network, would also benefit from that trend.

"The underlying metrics ... are telling us that AOL is reasserting itself as a leader in the online advertising space and we are doing the things that will cement that," Parsons told analysts on a conference call.

Time Warner said it expected AOL's ad growth rate in the second half to be similar to the second quarter, saying it was "stepping back" from its previous expectation that sales would rise at or above U.S. industry rates.

"What we are interested in is improving the products to increase users and engagement," Time Warner Chief Operating Officer Jeffrey Bewkes said. "We don't want to constrain ourselves too much with the guidance that we came up with back when we were making pretty significant changes in the business model last year."


New York-based Time Warner, which also owns the Warner Bros. movie studio and CNN, said second-quarter net profit rose to $1.07 billion, or 28 cents per share, from $1.01 billion, or 24 cents per share, a year earlier.

Revenue rose 6 percent to $11 billion, helped by a 59 percent rise in cable services revenue. Time Warner Inc. owns 84 percent of Time Warner Cable Inc.

Excluding special items, earnings were 22 cents per share, beating the average Wall Street forecast of 20 cents, according to Reuters Estimates.

"Results were weak on the whole," Miller Tabak analyst David Joyce said, but added, "With the company's announcement of the buyback, I still think this is an attractive entry point for long-term investors."

Time Warner shares slipped 3.95 percent to $18.50 on the New York Stock Exchange by early afternoon.

While AOL revenue fell 38 percent to $1.3 billion as it lost more paid Internet service subscribers, there were good signs in other performance yardsticks, such as the growth in the amount of time people spend on AOL.com, Oppenheimer & Co. analyst Thomas Eagan said.

"In terms of the metrics that people are looking at for AOL, it seems to be firming up," Eagan said.

The company plans to review the Internet unit's performance at the end of this year, he had said, spurring market speculation that it might spin off AOL in part or whole.

Time Warner reiterated it had no plans to focus on seeking such "creative structural alternatives" at this time.

Cable operating income before depreciation and amortization rose 52 percent helped by newly acquired cable systems.

But basic video subscribers fell 57,000 during the quarter, which was more than expected.

High speed Internet subscriber growth of 188,000 new customers also slowed in the quarter, a sign of the market's maturity.

Time Warner Cable ended the quarter with 13.4 million basic video subscribers.

Film division revenue fell 5 percent from lower TV revenue and lower home-video revenue compared with last year when its "Harry Potter" videos hit the market. Box office sales of "Ocean's 13" and "300" partially offset the declines.

Time Warner affirmed earlier full-year financial targets of earnings per share of 95 cents excluding items, and percentage growth in adjusted operating income before depreciation and amortization at a mid-to-high-teen percentage rate.