Time Warner Profit Beats Expectations

Time Warner Inc., the world’s largest media company, which agreed last month to be acquired by America Online Inc., reported higher fourth-quarter earnings Wednesday as stronger results from cable and publishing offset downturns in music and movies. The company’s WB television network also reported its first quarterly profit since its launch in 1995.

Time Warner, whose properties include CNN, Time magazine and Warner Bros. studios, earned 20 cents per share, easily beating analysts’ estimates of 16 cents per share, according to First Call/Thomson Financial.

Earnings before taxes and amortization, a measure of cash flow used by analysts, jumped 79% to $2.45 billion, or 12%, excluding one-time gains such as a $1-billion profit from cable systems sales.

Net profit was $848 million for the fourth quarter, compared with $90 million a year ago. Fourth-quarter revenue rose 10% to $7.99 billion, from $7.27 billion.

Most segments reported higher earnings, including Time Inc., which publishes Sports Illustrated, Money, Fortune and other magazines. Cable networks, which include TNT and TBS, also had a strong run as HBO made a splash with the hit series “The Sopranos.”

Music continued to be a sore spot. Poor sales at home and abroad, combined with a downturn at the Columbia House direct marketer, which is half-owned by Sony, led to a 16% drop in earnings.

Time Warner last month announced a deal to combine its music operations with Britain’s EMI, the last remaining independent music company, to form the industry’s largest player. The combination should lead to cost savings, increased clout with distributors and a stronger position in the race to bring music to the Internet.

Time Warner expects to exploit music on the Internet and is betting that its combination with AOL will help it leapfrog competitors such as Walt Disney and CBS/Viacom on the Internet. But investors, struggling to make sense of the merger, which brings together a highflying Internet company and a traditional media conglomerate, have pummeled AOL stock, which is being used to acquire Time Warner.

AOL stock is down 16% since the deal was announced, narrowing the premium it is paying for Time Warner from 70% to about 30%.

“There is lots of trading activity going on and there are always forces at work, but I believe trading activity in the [AOL] stock is not representative of the power of AOL-Time Warner,” said Time Warner Chairman and Chief Executive Gerald Levin.

Both stocks rebounded strongly after the strong earnings report. Time Warner shares jumped $7.06 to close at $85, while AOL rose $5.63 to $60.88. Both trade on the New York Stock Exchange.

The other division to show a decline was the film studio, where earnings edged down 3.5%. The company’s WB television network, which aims for younger audiences with shows such as “Buffy the Vampire Slayer,” edged into the black after a record upfront advertising season last fall.

For the full year, cash flow rose 64% to $7.33 billion, from $4.46 billion a year ago. After adjusting for the cable profit and other one-time effects, cash flow rose 15% for the year. Revenue for 1999 rose 4% to $27.33 billion, from $26.24 billion.