Time Warner to Split Off Cable Unit; Net Falls

Shares of the media company are slightly higher in early trading.
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Media giant

Time Warner

(TWX)

posted a drop in first-quarter earnings Wednesday and said it has decided to completely split off its

Time Warner Cable

(TWC)

unit.

Regarding the plan to part ways with the division, Time Warner CEO Jeff Bewkes said the determination was made that "a complete structural separation of Time Warner Cable, under the right circumstances, is in the best interests of both companies' shareholders."

The details of the proposal should be completed soon, he said. "At the same time, we'll continue to pursue the rest of our aggressive agenda that we believe will deliver increasing value to our shareholders," Bewkes added.

Time Warner made the announcement as it reported that for the three months ended March 31, earnings fell to $771 million, or 21 cents a share, from $1.2 billion and 31 cents a share in the same period a year earlier. Revenue climbed 2% to $11.4 billion and was in line with expectations.

Both quarters had items that factored in to the final results. Those items reduced the latest quarter's income from continuing operations by $28 million, or 1 cent a share. In the 2007 quarter, various items increased Time Warner's continuing operations profit by $325 million, or 8 cents a share.

Adding back the penny to this year, Time Warner would have earned 22 cents, just missing the consensus estimate of 23 cents.

Time Warner Cable was one of the quarter's bright spots, as revenue grew 8% to $4.2 billion. Subscription revenue was also up 8%, to $4 billion. Time Warner maintains an 84% stake in the company, while 16% is held by the public. Operating income rose 10% to $636 million.

Meanwhile, the New York-based company's AOL division was a drag. Revenue fell 23% to $1.1 billion, reflecting a 38% decline in subscription revenue. Advertising revenue edged up 1%.

Operating income for AOL slumped 74% to $284 million, mainly because of the sale of the division's German Internet access business and lower adjusted operating income before depreciation and amortization.

The filmed entertainment segment, Warner Bros. Entertainment and New Line Cinema, had a revenue increase of 4% to $2.8 billion. Operating income, though, declined 25% to $183 million.

Revenue from Time Warner's networks, Turner Broadcasting and HBO, climbed 10% to $2.7 billion, while operating income was up 2% to $874 million. Publishing revenue of $1 billion was essentially flat with the prior year.

"Our results this quarter, particularly the underlying operating strength at our cable, networks and filmed entertainment businesses, gave us the confidence to reaffirm our full-year business outlook," Bewkes said.

Shares of Time Warner were up 1.2% at $15.45 in premarket trading Wednesday. Time Warner Cable wasn't active. Time Warner Cable's larger rival

Comcast

(CMCSA) - Get Report

was higher by 0.3% to $20.31.

This article was written by a staff member of TheStreet.com.