The judge’s decision can’t come quickly enough.
Time Warner followed AT&T’s lackluster first quarter earnings report yesterday with a mixed-bag announcement of its own this morning. Revenues for the period increased 3% to $8 billion on growth at Turner and HBO, partially offset by a decline at Warner Bros. Operating income decreased 13% to $1.8 billion and 8% on an adjusted basis to $2 billion, which the company blamed on “declines at all operating divisions.”
On a diluted per-share basis, income rose to $2.07, up from $1.80 in the prior-year quarter. Adjusted, diluted net income per share was increased 37% to $2.28 from $1.66 a year ago. However, those per-share results included a net benefit of 49 cents a share related to the settlement of a U.S. federal tax audit and the retroactive extension of an expired tax law. Wall Street analysts had expected earnings per share of $1.74 and revenue of $7.94 billion.
As they have done for the past several quarters, executives cited the pending AT&T deal as the reason for skipping their quarterly conference call with Wall Street analysts to discuss the numbers and the state of the company. In the earnings announcement, CEO Jeff Bewkes said, “We’re off to a strong start to 2018 and we remain on track to meet the financial goals we laid out at the beginning of the year, as we continue to execute our strategic objectives.”
Bright spots for the quarter included Turner revenue, which gained 10% to $3.34 billion. Time Warner credited ad revenue from broadcasts of the NCAA Men’s Basketball Tournament. HBO also continued its momentum, with total revenue up 3% to $1.6 billion, with a 10% increase in subscription revenue stemming from more domestic subscribers paying higher rates, plus growth internationally. That upswing was partially offset by a 29% drop in revenue from content and other sources.
Warner Bros. saw revenue dip 4% to $3.2 billion, which the company blamed on lower TV and theatrical revenue, though more revenue from games and favorable foreign currency exchange rates provided a counter-balance. Time Warner said the decline in TV revenue was due to comparisons with the prior-year quarter, both in terms of domestic licensing of TV series and the mix and timing of theatrical releases.
The $85 billion merger between AT&T and Time Warner has been in legal limbo for the past five months, after the government sued last fall to try to block the deal, which it says would harm both consumers and rival companies. Both sides are expected to deliver closing arguments in the six-week trial on Monday, but U.S. District Court Judge Richard J. Leon is not due to issue his decision until mid-May at the earliest. The companies have set June 21 as the latest deadline for completing the merger, though they have previously pushed back the deadline.
The quarterly numbers showed the financial toll of the 18-month saga of getting regulatory approval. For the period ending March 31, the company said merger costs totaled $146 million, up from $82 million in the year-ago quarter.
Along with the quarterly figures, Time Warner also reaffirmed its full-year guidance for high-single-digit growth in adjusted operating income. The outlook does not include the impact of mergers or any costs associated with the pending AT&T deal.