Zacks_Analysts' Blog : Earnings Preview: Time Warner - Analyst Blog

Time Warner Inc. (TWX), the diversified media conglomerate, is slated to report its fourth-quarter 2011 financial results on February 8, 2012. The current Zacks Consensus Estimate for the quarter is 87 cents per share, representing an annualized increase of 29.9%. Revenue, as per the Zacks Consensus Estimate, is $8.1 billion.

Third-Quarter Synopsis

Time Warner’s third quarter earnings of 79 cents per share beat the Zacks Consensus Estimate of 75 cents, and surged 27% from 62 cents earned in the prior-year quarter on the heels of the box office success of "Harry Potter and the Deathly Hallows: Part 2" by Warner Brothers, higher television advertising demand and increase in television license fees.

Including one-time items, earnings came in at 78 cents per share, reflecting a steep rise from 46 cents in the year-ago quarter.

Time Warner, which competes with News Corporation (NWSA) and Walt Disney Company (DIS), registered an increase of 11% in total revenue to $7.1 billion from the prior-year quarter, reflecting growth across Networks and Filmed Entertainment segments. Also, revenue for the quarter handily surpassed the Zacks Consensus Estimate of $7 billion.  

Agreement of Estimate Revisions

Of the 27 analysts covering the stock, 2 analysts revised estimates upwards in the last 30 days, while 3 moved in the opposite direction.

In the last 7 days, 1 analyst revised the estimates in the upward direction, while none of the analysts revised their estimates downwards.

Magnitude of Estimate Revisions

Despite of the estimate revisions, the Zacks Consensus estimate remained stable over the period of last 30 days. 

Positive Earnings Surprise History

With respect to earnings surprises, Time Warner has topped the Zacks Consensus Estimate over the last four quarters in the range of 1.8% to 8.1%. The average remained at 5.6%, indicating that the company has outperformed the Zacks Consensus Estimate by the same magnitude in the trailing four quarters.

Our Take

The company has been expanding its digital presence to facilitate consumers to enjoy contents in more platforms and devices. Time Warner has enhanced the reach of HBO GO streaming service to mobile devices and entered into a deal with Apple so that the print subscribers of Time, Fortune and Sports Illustrated may access the iPad editions of these magazines at no additional cost.

Further, Warner Bros. became the first movie studio to offer video on demand, and acquired Flixster, a movie search application on smartphones and mobile devices.

Moreover, Time Warner’s significant international presence has helped broaden its client base and product portfolio. Time Warner operates in the United Kingdom, Germany, Canada, France, Japan and other countries apart from the United States. We believe that its strong international exposure will drive growth in the coming quarters.

However, the significant potential risk is the company’s high dependence on advertising revenue, which we believe will remain under pressure given the ongoing economic upheaval.

Currently, we have a long-term Neutral rating on the stock. Moreover, Time Warner has a Zacks #3 Rank, which translates into a short-term Hold recommendation