Time Warner Profit Beats Forecast, Helps Stock Recover From Plunge

Time Warner Inc. reported better-than-expected operating profit for the third quarter, helping its stock recover from a sharp plunge the previous day.

Time Warner, which owns the HBO, CNN, TBS cable channels and the Warner Bros. studio, said net income was $88 million, or 6 cents a share, in the quarter ended Sept. 30, down from $369 million, or 28 cents, in the same period last year, when profits were lifted by gains from selling and swapping cable systems. Analysts were expecting 4 cents a share.

Revenue rose 2% to $6.87 billion. Excluding the filmed entertainment division, revenue rose 9%.

Results at the filmed entertainment unit were hurt by the absence of “The Drew Carey Show” from syndication. The music business got a boost, however, from strong sales of the Corrs, Eric Clapton and Madonna, and strong advertising lifted the publishing business.

“Time Warner’s quarter looked impressive, but more importantly comments from [CEO Gerald] Levin during the conference call were extremely bullish,” said Fred Moran, analyst at Jefferies & Co.

Shares of Time Warner, whose merger with America Online Inc. is awaiting U.S. regulatory approvals, rose $3.74 to close at $69.25 on the New York Stock Exchange despite a steep drop in the Dow Jones industrial average. AOL closed up $3.31 at $46.91, also on the Big Board.

Time Warner had fallen to a 52- week low of $57.51 earlier Wednesday on concern that ad sales will slow as the economy cools and as cash-strapped Internet companies reduce their ad spending. On Tuesday, Time Warner fell 16% and AOL fell 17% on those concerns.

Advertising, which grew 17% in the third quarter, was one of the drivers for Time Warner’s earnings growth despite concerns that a slowdown in ad spending will cut into Internet media companies’ growth. Levin said he was comfortable with future ad and subscription growth rates.

“That’s not even an issue for us,” he said on a conference call with analysts. “AOL-Time Warner advertising will be the fastest growing part of the company.”

Levin also said Time Warner and America Online are in the “home stretch” of their efforts to win U.S. government approval for AOL’s acquisition of Time Warner. He said the companies expect to complete the transaction later this year.

The company said it’s working with London-based music company EMI Group to restructure the planned merger of Warner Music Group and EMI that was called off this month in the face of opposition from European antitrust regulators.

“It isn’t dead yet. Stay tuned,” Time Warner President Richard Parsons said on the conference call. The two companies are in exclusive negotiations until Jan. 31, Time Warner said.

Time Warner said cash flow, orearnings before interest payments, taxes and amortization, rose 13% to $1.273 billion, or 7 cents a share, from $1.128 billion, or 7 cents, last year.