Time Warner (TWX) Affirms Outlook As Publishing Unit Post A Loss

The good news from Time Warner (TWX) is that it affirmed its earnings outlook for the year. The bad news is that it is losing more revenue at its publishing unit, Time, Inc. where sales dropped 22% and that AOL operating income is dropping quickly.

For the quarter, revenues declined 9% from the same period in 2008 to $6.8 billion. Lower revenues at the publishing, AOL and filmed entertainment segments more than offset growth at the networks segment.

EPS posted for the second quarter was $.43 compared to $.66 last year. Net income dropped to $519 million from $792 million in the same period a year ago.

Television network revenue rose 5% to $3.0 billion, with 8% growth in subscription revenues, offset partially by a 3% decrease in advertising revenues. Operating income grew 17% to $875 million.

Film entertainment revenue declined 9% to $2.3 billion, as a stronger theatrical release slate, driven by The Hangover, was more than offset by lower DVD sales due to reduced quantity and performance of new home video releases. Operating income rose 52% to $143 million.

Magazine results were very troubling. Revenue decreased 22%  to $915 million, due to declines of 26% in advertising revenues and an 8% drop in subscription revenues. Operating income decreased 53%  to $102 million

Revenue at AOL decreased 24% to $804 million, as a result of a 27% decline in subscription revenues due to continued subscriber losses and 21%  lower advertising revenues.

Costs at the magazine divisions are still too high and AOL management will have to prove to Wall St. that it can improve advertising revenue as subscriptions at its ISP disappear.

Douglas A. McIntyre