Time Warner earnings triple

Time Warner Inc. could be about to shed its status as a Wall Street dud. Shares of the entertainment giant closed at a four-year high Tuesday of $20.01 before retreating slightly Wednesday, after the company reported earnings that were a shade shy of Wall Street expectations.

The company, which recently became the dominant cable operator in Los Angeles as a result of a deal with Adelphia Communications Corp. and Comcast Corp., said Wednesday that it benefited from strong demand for its digital and high-speed Internet services. Its earnings tripled in the third quarter.

Cable TV revenue soared 44% to $3.2 billion during the quarter, thanks largely to systems acquired in the Adelphia-Comcast deal. Time Warner also booked a one-time gain from that deal.

But Chief Executive Richard D. Parsons noted in a conference call with analysts that Time Warner’s existing cable systems were doing fine on their own. Revenue from that group rose 15%, Parsons said, as more than 200,000 households signed up for high-speed Internet service in the quarter.

Despite the good news about cable, Time Warner missed expectations partly because of its film operations, which failed to match their strong performance of a year earlier.

Referring to Warner Bros.’ expensive cruise-liner flop “Poseidon,” Jeffrey L. Bewkes, chairman of Time Warner’s Entertainment and Networks Group, said: “Sometimes one of your ships sinks.”

Time Warner shares fell 24 cents Wednesday to $19.77.

The world’s largest media and entertainment company, which also owns Time magazine and the Home Box Office cable network, sought to reassure investors that its AOL unit was making a smooth transition from its subscription business model to one that is ad supported.

AOL, which has been losing subscribers as users upgrade from dial-up to broadband, said in August that it would drop access fees for high-speed AOL users. The strategy is being closely watched by Wall Street because the company risks accelerating the loss of subscription revenue by making such services as e-mail free to all broadband users. AOL’s goal is to win back “eyeballs,” making up the lost revenue with more advertising dollars.

The gamble appears to be paying off, CEO Parsons said. Quarterly revenue declined 3% to $1.98 billion as subscription revenue sank 13%. But advertising revenue jumped 46%.

Time Warner also said its earnings growth for full-year 2006 remained on track. The New York-based company’s preferred yardstick, operating income before depreciation and amortization, is expected to grow at a percentage rate “in the low double digits,” executives said.

For the quarter, net income leaped to $2.32 billion, or 57 cents a share, from $853 million, or 18 cents a share, a year earlier.

The quarter’s profit was boosted by a $729-million gain from the sale of the company’s stake in Time Warner Telecom and Warner Bros.’ Australian theme parks, plus a $373-million tax benefit, partly offset by $29 million in expenses from securities litigation and government investigations.

Without one-time gains and income from discontinued operations, net income would have been 19 cents a share. Although up from 17 cents a share in the year-earlier period, it fell short of Wall Street’s consensus estimate of 20 cents a share.

Revenue for the quarter ended Sept. 30 rose 6.5% to $10.91 billion from $10.24 billion a year earlier, also just below the consensus forecast of $11 billion.

Time Warner’s film unit -- the Warner Bros. and New Line Cinema studios -- was a weak spot, with revenue down 10% to $2.4 billion. The company noted that the year-earlier quarter included strong results from such hits as Warner Bros.’ “Charlie and the Chocolate Factory” and New Line’s “Wedding Crashers.”

Revenue in the networks division, consisting of Turner Broadcasting, HBO and the new CW Network, rose 4% to $2.5 billion, with ad revenue up 6%. Operating income declined 21% to $526 million, however, because of a $200-million charge tied to the CW Network, which is co-owned with CBS Inc.

thomas.mulligan@latimes.com