Time Warner Beats Q1 Earnings Estimates Helped By ‘Kong’, But Ad Sales Fall

Time Warner’s Q1 financial report shows it beat most analyst estimates in all areas, except for one that may dominate discussion: Turner’s TV network ad sales fell 2% due to ratings declines and “lower domestic subscribers.”

Investors will probably want to hear more about that after several cable and satellite companies reported disappointing video sub numbers, suggesting an acceleration of cord cutting.

Wall Street will look at Time Warner as a bellwether for other companies because its value is fixed at $85 billion, the price of AT&T’s acquisition offer.

Still,  Time Warner generated $1.42 billion in net income, up 17.3% vs the period last year, on revenues of $7.74, up 5.8%. The top line beat the Street’s consensus forecast for $7.67 billion.

And adjusted earnings at $1.66 a share handily beat expectations for $1.45.

“Warner Bros. delighted audiences in both film and television, with global hits in Kong: Skull Island and The LEGO Batman Movie and more series across broadcast for the current season than any other studio,” CEO Jeff Bewkes says. “Turner had another successful airing of the NCAA Division I Men’s Basketball Tournament across platforms, while CNN grew its total day ratings by 21% among adults 25-54, and remained the leader in digital news. Together, Turner and Warner Bros. also launched our new Boomerang-branded SVOD service, adding to our growing portfolio of products that are reaching consumers directly.”

He adds that the company is “on track, pending completion of regulatory reviews and receipt of consents, to close our merger with AT&T Inc. before the end of 2017.”

At Turner, operating income fell 6% to $1.2 billion while revenues were up 6% to $3.1 billion. The gains came from a 12% increase in subscription revenues and a 16% increase for content.

But the ad sales drop will surprise analysts who expected about a 1% gain ini Q1 vs. last year. The company says that the decline was “primarily due to lower deliver at certain domestic networks, partially offset by increases at Turner’s sports and news businesses and growth at Turner’s international networks.”

The drop in profits was partly due to the 17% jump in programming costs with the tip off of Turner’s new licensing deal with the NBA.

Warner Bros. did well, with successes in Kong: Skull Island and The Lego Batman Movie, and the home video release of Fantastic Beasts and Where To Find Them. Operating income was up 15% to $488 million on revenues of $3.4 billion, up 8%.

HBO also saw increases with operating income +22% to $583 million on revenues of $1.6 billion, up 4%. The company reports that subscription revenues were up 5% “due to higher domestic rates and subscribers and international growth.” But content and other sales fell 1%.