Clock Ticks at Time Warner

Investors remain frustrated by the stock's persistent decline.
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Disappointment remains Wall Street's watchword on Time Warner (TWX) .

The media behemoth overcame a challenge by restive shareholders earlier this year and is preparing to

roll out a new plan for its torpid AOL unit. But as Time Warner prepares to post second-quarter earnings Wednesday morning, its stagnant share price continues to flummox investors.

The New York media company, which owns cable systems, TV networks and movie studios, along with publishing and online properties, has seen its shares fall 7% in 2006. That lags behind the big-cap S&P 500, which is up 2%, and trails hard-charging peers

Disney

(DIS) - Get Report

and

News Corp.

(NWS) - Get Report

, each up more than 20%.

What is so frustrating to supporters of management led by CEO Dick Parsons is that except for AOL, all the company's other units routinely perform well. This quarter, analysts are betting that once again most divisions, with the possible exception of AOL, will pull their weight.

For example, Gabelli & Co. fund manager Larry Haverty says that the company's cable division is twice as important as AOL in the overall mix. Haverty expects "very strong results for cable," saying Time Warner Cable's triple-play bundle is more evolved than

Comcast's

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. Gabelli & Co. owns Time Warner shares.

On the movie and television front, Haverty says Warner Bros. has gone through a bit of a "soft patch," but adds that he, like others, has confidence in the studio and the TV networks.

Still, it's AOL and losing dial-up customer cash flow that weighs on the minds of most. Haverty explains that while the dial-up service yields significant cash flow, it has also proved expensive to market and operate. As such, if the company can impress upon Wall Street that too much cash flow will not be surrendered in an AOL makeover and that ad growth is keeping pace with online competitors, investor nerves may be calmed.

Analysts polled by Thomson Financial will be looking for the company to earn 20 cents per share on $10.99 billion in revenue.

Time Warner's underperformance has persisted even after Parsons defused last year's crusade by hedge fund activist Carl Icahn. The sides reached a truce early this year that called for a big share buyback and other supposedly shareholder-friendly measures. Yet Time Warner stock continues to stumble along.

For the second quarter, cable results are expected to be strong in light of Thursday's healthy report from rival Comcast.

Prudential analyst Katherine Styponias expects to see double-digit revenue gains at Time Warner Cable this quarter. Prudential's projections call for $2.69 billion in revenue, up 14% from last year. Revenue-generating units may be down 4%, however, coming off what Prudential describes as an "exceptional second quarter of 2005." For its part, Comcast posted what it called record unit growth in the latest period.

In recent weeks both the Federal Communications Commission and the U.S. Bankruptcy Court finalized details on the Adelphia Communications acquisition by Time Warner and Comcast. Out of that deal, Time Warner Cable will add some 3.5 million Adelphia subs.

"We have a high degree of confidence in the ability of Time Warner Cable management to eventually bring the OIBDA margin of Adelphia in line with its own," Styponias says, adding that the deal should help lift growth rates. Time Warner is committed to spinning off a portion of its cable division. Styponias or a member of her team has a Time Warner stake.

In filmed entertainment, the company faces tough comparisons to last year. That fix won't be eased by undersea flop

Poseidon

, which tanked this spring. Home-video returns should make up much of the difference. Styponias writes that the division "is facing very difficult comparables due to last year's strong box-office performances of

Batman Begins

and

Monster-in-Law

." Revenue is expected to be flat.

At the networks division, revenue is expected to grow in the single digits. Results may be compromised somewhat by what has reportedly been a soft cable advertising market and the migration of ad dollars online. Still, the company's top-shelf networks should hit high single-digit growth regardless.

Prudential, which has a neutral weight rating and $21 price target on Time Warner, expects publishing revenue to be up 4%.

But to be sure, all eyes will be on a planned metamorphosis at AOL when the company details its latest intentions this week.

Time Warner traded up 1% to $16.50 on Monday.