Time Warner Profit Beats Estimates; Forecast Raised

Time Warner Inc., owner of the TNT and TBS cable networks, beat analysts’ third-quarter profit estimates on higher TV licensing and advertising sales. The company raised its 2010 earnings forecast.

Earnings, excluding debt refinancing costs, rose to 62 cents a share from 53 cents, the New York-based company said today in a statement. Analysts projected 53 cents, the average of 22 estimates compiled by Bloomberg.

Advertising sales increased at the cable channels and the Time Inc. magazines such as Fortune and Sports Illustrated. Earnings at the Warner Bros. studio fell less than some analysts expected as network syndication sales of programs such as “Two and a Half Men” helped mitigate lower movie ticket sales.

“EPS was a solid beat on strong margins, particularly strong margins in networks,” said Chris Marangi, an analyst at Gabelli & Co. in Rye, New York. “They had solid advertising and subscription growth.”

Gabelli is an affiliate of Gamco Investors Inc., which owns 4.95 million shares of Time Warner, according to Bloomberg data.

Time Warner sees percentage growth in the “high 20s” for adjusted earnings from continuing operations this year, from $1.83 a share last year. That compares with an August forecast of at least 20 percent. Analysts project earnings of $2.26, implying growth of 23 percent.

Net income for the third quarter fell to $522 million, or 46 cents a share, from $662 million, or 55 cents, a year ago. Adjusted earnings exclude a $295 million loss from buying back debt. Revenue rose 1.8 percent to $6.38 billion, missing the $6.44 billion average estimate.

The Next Harry Potter

Time Warner, also the owner of HBO, fell 34 cents to $32.07 at 4 p.m. in New York Stock Exchange composite trading. The shares have added 10 percent this year.

Warner Bros., the No. 1 film studio this year, made $460.1 million at the box office in the third quarter with the release of “Inception,” according to researcher Box Office Mojo, based in Sherman Oaks, California. That’s down from $652.5 million a year ago when blockbusters “Harry Potter and the Half-Blood Prince” and “The Hangover” lured theatergoers. The next installment of the Harry Potter franchise comes out Nov. 19.

Operating income for the film division fell 31 percent to $200 million in the third quarter.

Despite lower overall ratings, ad sales at the cable channels, including Cartoon Network, TNT and CNN, rose 10 percent, in line with the estimate from Spencer Wang, an analyst with Credit Suisse. The unit’s operating income grew 23 percent to $1.14 billion.

Management Changes

At the magazines, ad sales gained 5 percent, better than Wang’s estimate for a 4 percent increase. Operating income for publishing rose 45 percent to $141 million as cost reductions offset lower subscription sales.

Time Warner has undergone a series of management changes across its divisions. In August the company hired Jack Griffin as chief executive of the magazine publishing unit, replacing Ann Moore. The next month the company extended Warner Bros. Chairman and CEO Barry Meyer’s contract for three more years and lined up three potential internal successors.

Cable news network CNN faced the most upheaval with the replacement of Jon Klein as head of the U.S. network. HLN’s Ken Jautz takes over amid falling viewership and a new prime-time lineup featuring Eliot Spitzer and Piers Morgan, who will replace Larry King.

To contact the reporter on this story: Sarah Rabil in New York at srabil@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net

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