Time Warner Q2 2010 Earnings Call Transcript

Time Warner Q2 2010 Earnings Call Transcript
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Time Warner (TWX)

Q2 2010 Earnings Call

August 04, 2010 8:30 am ET

Executives

John Martin - Chief Financial Officer and Executive Vice President

Jeffrey Bewkes - Chairman and Chief Executive Officer

Douglas Shapiro - Head of Investor Relations

Analysts

Michael Morris - Davenport & Company, LLC

Spencer Wang - Crédit Suisse AG

Richard Greenfield - BTIG, LLC

Anthony DiClemente - Barclays Capital

Jason Bazinet - Citigroup Inc

James Dix - Wedbush Securities Inc.

Douglas Mitchelson - Deutsche Bank AG

Thomas Eagan - Collins Stewart LLC

Presentation

Operator

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Good day, ladies and gentlemen, and welcome to the Time Warner Second Quarter 2010 Earnings Conference Call. [Operator Instructions] I would now like to turn the presentation over to your host for today's call, Doug Shapiro, Senior Vice President of Investor Relations. Please proceed.

Douglas Shapiro

Thanks and good morning. This morning, we issued two press releases. One, detailing our results for the second quarter and the other, updating our 2010 full year business outlook. Before we begin, there are two items I need to cover.

First, we refer to certain non-GAAP financial measures, schedules setting out reconciliations of these historical non-GAAP measures to the most directly comparable GAAP measures are included on our earnings release and trending schedules. These reconciliations are available on our website at timewarner.com/investors. Reconciliations of our expected future financial performance are also included in the business outlook release that's available on our site.

And second, today's announcement includes certain forward-looking statements, which are based on management's current expectations. Actual results may vary materially from those expressed or implied by these statements due to various factors. These factors are discussed in detail in Time Warner's SEC filings, including its most recent annual report on Form 10-K and quarterly report on Form 10-Q. Time Warner is under no obligation and, in fact, expressly disclaims any obligation to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise.

Thank you, and I'll turn the call over to Jeff.

Jeffrey Bewkes

Good morning, everybody. Thanks for joining us. We just completed another very strong quarter, capping off a good first half of the year.

Our revenue grew 8%, and that's our highest rate in two years, with advertising revenue up 11%, its highest rate in almost six years. Adjusted operating income rose 15%, and our adjusted earnings per share climbed 35%.

As you saw in this morning's release, we've raised our outlook for the year. We now expect adjusted EPS to increase at least 20% in 2010, up from our prior guidance of at least mid-teens growth. And please keep in mind that, that's after growing adjusted EPS by 29% last year.

Our results this year have benefited from an improved ad environment, from our continued cost controls and more than anything else, the appeal of our content and the strength of our brands. As I've told you before, one of our key objectives is to leverage our scale and brands, to invest in and create the highest-quality concept. That, in turn, strengthens our brands, attracts audiences and increases our scale. It's a virtuous circle and a key competitive advantage for Time Warner. Across the company this quarter, you can see our commitment to this strategy, and you can see the payoff. I'll start with our Networks.

There's no doubt that the quality of Turner's content and the appeal of its brands helped drive its 14% advertising growth this quarter, and that's the highest in years. Discounted market was healthy in the quarter, which helped our performance. But our advertising growth was so strong, in large part because advertisers increasingly want to associate their brands and products with ours. Our success at this year's upfront also showed the appeal of our content and brands.

Turner's Entertainment Networks (sic) [Turner Entertainment Networks] led both their broadcast and cable competitors in pricing gains. And they increased volumes by double digits. In particular, we saw extremely strong demand for Conan O'Brien. In fact, we were able to achieve parity with the broadcast EPS for the show.

Also, we're especially encouraged by the performance of truTV. As you know, tru recently broke into the ranks of top 10 cable networks. In the second quarter, it delivered more adults, 18 to 49, than MTV, Spike, Sci-fi and Lifetime. And tru was treated like a top 10 network at the upfront, achieving CPM increases comparable with our other large entertainment networks for the first time.

So advertisers are recognizing the growing value of our programming and brands. We're confident that our affiliates will also recognize this increasing value over time. As we head into the back half of the year, we're feeling very confident about Turner's slate of original programming. One of our new shows, Memphis Beat, premiered in June as the top-rated new cable series of the quarter.

And last month, in July, another new series, Rizzoli & Isles, launched as the highest-rated, ad-supported premier in the history of cable. And we just brought back The Closer, which remains the number one show week-after-week on cable, and it's up over last year. Other hit shows returning in the next couple of months included Dark Blue, which is premiering tonight, and Ray Romano's, Men of a Certain Age, which is coming back in the fall. And then, of course, we'll launch Conan's show in November.

This team focused on content and brand as the driving force at HBO. As you know, HBO not only has the best slate of recently released movies, but it also has the best original programming on TV. Just a few weeks ago, for example, HBO received 101 Emmy nominations, the most in any network for the 10th year in a row. Viewers agree with the critics.

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