Time Warner Inc., the world’s largest media company, reported an 80 percent increase in third-quarter earnings Wednesday and raised its stock repurchase program to $12.5 billion from $5 billion in an effort to meet shareholder demands to lift its slumping stock price.
The New York-based company, whose properties include the Warner Bros. studio, HBO, CNN, a major cable TV company and Time magazine, posted net earnings of $897 million versus $499 million in the same period a year ago.
Per-share earnings came in at 19 cents compared with 11 cents a year ago. Analysts polled by Thomson Financial were expecting a profit of 17 cents per share. Revenues rose 6.1 percent to $10.54 billion from $9.94 billion.
At the same time, the company also announced that its board of directors had approved an increase in its share buyback program to $12.5 billion over the next 21 months, up from the previous level of $5 billion.
Shareholders have been clamoring for Time Warner to take steps to lift its moribund share price, which is still about 75 percent below the levels it saw prior to agreeing to be bought in early 2000 by AOL. That deal resulted in shareholder lawsuits, regulatory scrutiny and a management purge.
The third-quarter gains were driven by strong showings in cable TV, which benefited from customers signing up for more premium services like high-speed Internet and digital phone, and cable networks, which had gains from the syndication of HBO’s “Sex and the City” and higher advertising.
Activist shareholder Carl Icahn has been pressuring Time Warner’s management to take dramatic measures to boost its share price, including completely spinning off its cable TV division and raising the stock buyback program to $20 billion. He has also criticized the fact that several directors who approved the disastrous AOL deal remain on the board. AOL’s co-founder Steve Case, a key architect of the deal who later become a target for critics, resigned from the Time Warner board on Monday.
Time Warner already plans to spin off 16 percent of its cable company, and has disagreed with Icahn’s suggestion to spin off the entire unit. Time Warner has said its current top priority is turning around AOL’s fortunes, but at the same time said it was considering other steps to return value to shareholders. Icahn didn’t return a call seeking comment.
Revenue at AOL declined 5 percent in the quarter on a 10 percent decline in revenues from subscriptions, which more than offset a 28 percent rise in online advertising. AOL lost another 678,000 subscribers in the period, ending the quarter with 20.1 million U.S. members. However, earnings rose 16 percent on lower network and marketing costs.
AOL was long seen as a drag on Time Warner due to the steady decline of the dial-up Internet access business, but in recent months AOL has been successfully revamping its business model, moving away from the subscription business and selling more online advertising, as investor favorites Google Inc. and Yahoo Inc. do. AOL is now the subject of acquisition talks with those and other suitors.
In a conference call with analysts, Time Warner’s CEO Dick Parsons described the talks as “exploratory discussions” with a number of parties, many of whom have been identified in the news media. In addition to Google and Yahoo, Comcast Corp. and Microsoft Corp. have also been named as potential partners.
Parsons cautioned investors that “because the discussions are fluid, we don’t know if they will result in any transaction,” he said, adding: “I can assure you, however, that these discussions will result in a transaction only if we determine that it can enhance our competitive profile and our prospects for increasing value.”
Earnings from cable TV rose 15 percent on a 13 percent gain in revenues as more customers signed up for premiums services including digital cable, high-speed Internet and digital phone service that runs over the Internet.
Profits from cable networks and the WB broadcast network jumped 21 percent on a 10 percent rise in revenues on higher advertising and subscription sales as well as profits from the broadcast syndication of “Sex and the City” and international sales of other HBO programs.
Publishing, which includes Time Inc.’s large stable of magazines and the Time Warner Book Group, posted a 9 percent gain in profits on 3 percent higher revenues, as gains from the magazines Real Simple, book publishing and the acquisition of Essence magazine offset weakness in advertising from other magazines including Sports Illustrated and Time.
Profits from filmed entertainment, a category that includes movies and production of TV shows, dropped 30 percent despite a 6 percent rise in revenues because of higher marketing and distribution expenses as well as the absence of highly profitable returns from overseas distribution of “Troy” and the latest “Harry Potter” movie in the year-ago period.