Time Warner Beats Expectations on Cable, Magazine Ad Growth - TheStreet

Time Warner Beats Expectations on Cable, Magazine Ad Growth

Market reaction was muted, even as the company reported that its cash flow increased 49%.
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Fueled by advertising growth for its cable channels and magazines,

Time Warner

(TWX)

reported third-quarter operating profits today that well exceeded Wall Street's expectations.

The nation's largest media and entertainment company said its earnings excluding one-time gains totaled 8 cents a diluted share. Analysts polled

by First Call/Thomson Financial

had been expecting an average of 4 cents a share.

Market reaction was muted. The company's stock was down 5/16 in midday trading at 63.

Time Warner said its net income, including nearly $500 million in one-time gains from the sale of cable systems, jumped to $360 million, or 27 cents a diluted share, reversing a loss of $37 million, or 3 cents a share, in the 1998 third quarter.

The company's operating cash flow rose 49%, to $1.61 billion from $1.08 billion a year earlier. Because Time Warner carries a heavy debt load exceeding $15 billion, Wall Street tends to focus on its cash flow -- earnings before taxes, interest and amortization -- to judge the underlying health of the company's operations.

Revenues for the third quarter rose 2%, to $6.72 billion from $6.59 billion. The results reflect the consolidation of

Time Warner Entertainment

into Time Warner in August.

"I am pleased again with the record quarterly results," Gerald Levin, chairman and CEO, said in a statement.

Chris Dixon, analyst for

PaineWebber

, said the results were impressive across most sectors.

"Music was a little bit weaker than the Street had been looking for," Dixon said, citing market pressure from

Warner Music's

recording rival,

BMG

. "Cable television continues to be driven by the rollout of a variety of new services" like digital TV. Dixon rates the stock a buy. PaineWebber hasn't done recent underwriting for Time Warner.

Cash flow at the company's cable networks rose 21%, to $328 million, in the quarter. At the

Time Inc.

publishing division, cash flow rose 15%, to $129 million. But it fell 23% at the

Warner Music Group

, to $76 million, and 2%, to $228 million, at its movie division.

Time Warner's cable systems division saw its cash flow more than double, to $894 million, but that reflected $477 million in one-time pretax gains from the sale or exchange of cable systems.

The

WB

network, meanwhile, saw its losses increase to $24 million from $17 million a year earlier.