Time Warner Stock Hit by Analyst Report

Shares of Time Warner Inc., the world’s largest media company, fell 7% after a Merrill Lynch & Co. analyst cut earnings estimates for this year and next on concern about a decline in its music business.

Time Warner fell $4.56 to close at $61.63 on the New York Stock Exchange after earlier falling to a six-month low of $61.38.

Merrill’s Jessica Reif Cohen lowered her profit estimate for Time Warner to 35 cents from 48 cents a share for this year and to 80 cents from 82 cents in 2000. Cohen cited competition from Seagram Co.’s Universal Music Group and lower sales in overseas markets such as Germany, Brazil and Japan. Cohen is one of the more widely followed entertainment analysts on Wall Street.

“We believe the shares may continue to tread water near-term as current-year estimates decrease,” she wrote in a report. Cohen, who wasn’t available to comment, maintains a long-term “buy” rating on Time Warner.

Cohen also lowered her estimate for 1999 cash flow, or earnings before interest, taxes and amortization, to 9% to 10% growth, down from earlier projections of 13%. Cash flow is used by analysts to measure the performance of indebted companies because it excludes interest payments and focuses on the underlying operations.

The revisions put Cohen more in line with consensus estimates. Time Warner is expected to earn 37 cents a share this year and 67 cents in 2000, according to the average forecast of analysts surveyed by First Call Corp. Estimates for 2000 ranged from 37 cents to 86 cents.

The company’s Warner Music unit has fallen to No. 2 in total U.S. album sales, with its market share at 18%, compared with 20% a year ago.

Universal, which became the world’s largest music company in December when Seagram bought PolyGram for about $10.4 billion, is the leader in U.S. album sales, with 27% of the market.

Warner Music, whose performers include Madonna, Alanis Morissette and Cher, also has suffered because of fewer hit records this year as well as delayed releases, the company said.

It’s also had declining sales in several overseas markets, especially Japan and Brazil.

“We’ll continue to see international weakness. That’s affecting the entire industry,” said Scott Davis, an analyst at Schroder & Co., who reiterated his “outperform” rating on Time Warner.

Time Warner’s music group has been hurt by management turmoil in recent years, analysts said. In 1996, after a string of high-profile executives were ousted, Time Warner Chairman Gerald Levin put the company’s film studio co-chairmen, Terry Semel and Robert Daly, in charge of music as well.

Critics said the move spread the executives too thin and didn’t provide the proper oversight for the music operations.

Last month, Semel and Daly announced they would depart the company. Time Warner has appointed Roger Ames as chairman and chief executive of the music group. He was previously in charge of PolyGram’s music business.