AOL Time Warner Restores Confidence With Strong First-Quarter Earnings

AOL Time Warner Inc. delivered surprisingly solid earnings Wednesday to a wary Wall Street, putting to rest--for now--doubts about the media and entertainment giant’s ability to hit its financial targets amid the advertising slowdown.

Fueled by double-digit growth at its Internet and cable businesses, the New York-based company said first-quarter revenue rose 9% to $9.1 billion. Quarterly earnings, before certain costs, soared 20% to $2.1 billion.

The strong showing was in sharp contrast to those of other Internet and media companies, which have disappointed investors in recent weeks with rising losses and falling sales. Last week, Yahoo Inc. said it would fire 12% of its work force and report an $11.5-million first-quarter loss.

Also making a strong showing Wednesday were technology bellwethers IBM Corp., Apple Computer Inc. and Advanced Micro Devices Inc., leading some to speculate that the technology sector may be beginning to turn around.

At AOL Time Warner, cash earnings for the quarter ended March 31 were 23 cents a share, beating Wall Street’s average expectation of 20 cents.

Merger-related expenses and other noncash charges, however, caused the company to report a $1.4-billion net loss in the quarter, or 31 cents a share, compared with a net loss a year ago of $1.5 billion, or 34 cents a share. The results are the first to reflect the combined operations of AOL and Time Warner since their Jan. 11 merger.

“They’ve done a great job in restoring confidence in their business model and their growth targets,” said Andrea Rice, an analyst at Deutsche Bank.

Shares of AOL Time Warner surged nearly 12% to close Wednesday at $49 a share, up $5.10, in New York Stock Exchange trading.

For months, AOL executives have told investors that the company was on track to meet its aggressive 2001 financial targets, even as other companies faltered. And for months, Wall Street has been skeptical about whether AOL could deliver on its promise.

Even with a solid first-quarter performance, the company will have to work overtime to meet its year-end goal of generating $40 billion in revenue and $11 billion in earnings, before accounting for interest, tax, depreciation and amortization.

AOL Time Warner’s chief executive, Gerald Levin, reiterated those targets Wednesday and said his company is not as vulnerable as others to the ad slowdown.

“Our company rides above the normal market dynamics,” Levin said. Nevertheless, company executives predicted ad sales would rebound in the second quarter.

Revenue from the company’s 133 million subscribers--including AOL members, HBO viewers and People and Time magazine readers--accounted for nearly 43% of total first-quarter revenue.

Advertising and e-commerce revenue--a trouble spot at many Internet companies--rose 10% during the quarter, thanks largely to increases at the flagship AOL Internet service and the Time Warner cable business.

Growth in the company’s music, publishing and film divisions was less impressive.

Led by Warner Bros., film earnings--before interest, tax, depreciation and amortization--slumped 39% in the quarter. Warner Music Group saw its quarterly revenue fall 6%.

Richard Parsons, co-chief operating officer, predicted that the hit-driven divisions would rebound later in the year, with the highly anticipated release of Steven Spielberg’s “AI,” “Harry Potter,” and “Lord of the Rings.”

“Warner Bros is going to have a monster year,” Parsons said. “We’re getting it together on the music front.”

Meanwhile, IBM reported a 15% rise in first-quarter net income, saying it expected to outperform its rivals but was not immune to customer spending cutbacks.

The world’s largest computer maker said net income was $1.75 billion, or 98 cents per share, compared with $1.52 billion, or 83 cents per share, a year earlier.

Analysts had expected IBM’s earnings to be 89 cents to $1.02 per share, with the average at 98 cents.

IBM’s sales rose 9% to $21 billion in the quarter. “At first blush it looks very positive, at least relative to their cohorts,” said Rob Schafer, an analyst at Meta Group.

Computer maker Apple far exceeded Wall Street’s expectations, returning to profitability as promised after posting its first quarterly loss in three years.

For its fiscal second quarter that ended March 31, Apple earned $43 million, or 12 cents a share. Without nonrecurring items, Apple’s profit was $40 million, or 11 cents a share.

Wall Street analysts surveyed by First Call/Thomson Financial had projected Apple earnings of just a penny a share.

Shares of Apple surged 12% in after-hours trading, rising to $25.55, after finishing the regular session up $2.39 to $22.79.

Apple had earned $233 million, or 64 cents per share, in the second quarter a year ago. Revenue was $1.43 billion the latest quarter, down 26% from the $1.95 billion of the year-ago period.

Sluggish sales, increased competition and a glut of inventory led the Cupertino-based computer maker to a loss of $247 million, or 73 cents a share, in the previous quarter, which ended Dec. 30.

And Advanced Micro Devices, Intel Corp.’s principal competitor for microprocessors, reported first-quarter profit that also beat analysts’ forecasts as AMD sales rose 9% from a year ago, gaining market share against Intel.

For the first quarter ended April 1, Sunnyvale, Calif.-based AMD said net income fell to $124.8 million, or 37 cents, from $189.3 million, or 55 cents, a year ago. AMD’s sales rose to $1.19 billion from $1.09 billion a year earlier.

Analysts’ consensus forecast was for AMD to earn 33 cents a share, according to First Call. The revenue forecast was for $1.13 billion.

“We gained market share last quarter in both PC processors and flash memory [chips], the focal points of our growth strategy,” said Jerry Sanders, AMD’s chairman and chief executive.

Times wires services were used in compiling this report.