Time Warner Shares Hit Hard Over Q4 Results

Time Warner, under pressure as activist investors reportedly circle the media giant looking for ways to break it up, didn’t help its case to remain independent as fourth quarter results across all of its divisions came in below expectations.

Time Warner shares fell hard in early trading on the New York Stock Exchange, opening at $56.26 per share, down 12% (6.95 each). The company is scheduled to hold a conference call with analysts to discuss results at 10:39 a.m. By around 11 a.m., during the call with analysts, TWI was up to $60.71, down about 4% from the opening.

(UPDATE FROM THE CALL: TWI, HBO execs call out progress on HBO Now, which has hit 800,000 paying subscribers.)

Overall revenue fell 6% in the fourth quarter to $7.1 billion and adjusted operating income fell 12% to $1.4 billion due to declines at all of the media giant’s operating division. Time Warner did beat consensus estimates on earnings per share-- $1.06 per share versus analysts’ expectations of $1.01 per share – but that was mainly because it paid fewer taxes than expected.

At its Turner networks unit, revenue increased 2% and advertising revenue climbed 5%, but adjusted operating income declined 15% to $781 million, mainly due to a 22% increase in programming expenses. At Home Box Office, revenue increased 6% to $1.4 billion in the quater, but adjusted operating income was flat at $393 million due to programming costs increases and higher marketing and technology expenses associated with its standalone product HBO Now.

In a statement, Time Warner chairman and CEO Jeff Bewkes concentrated on full year results, which were better, with a 3% rise in revenue and a 19% gain in AOI.

“All three of our operating divisions increased revenue and profits while also investing to capitalize on the shift to on-demand viewing and growing worldwide demand for the very best video content,” Bewkes said in the statement.

In a research note, Sanford Bernstein media analyst Todd Juenger wrote that while Time Warner’s results were no surprise – they had basically pre-announced results in January. But how they got there – missing operating income estimates in every segment and beating earnings per share expectations because of a lower tax rate (25% vs. 35% iln the prior year) -- was. 

“This is not a forgiving market environment in general, or for media stocks specifically. We don't think [Time Warner] shares will get a "pass" on a tax beat …,” Juenger wrote