AOL Time Warner Says It’s on Track to Meet Targets

AOL Time Warner tried to reassure Wall Street on Wednesday that the newly merged company--fueled largely by its fast-growing America Online unit--remains on track to meet its financial targets, despite a slowing economy and softening advertising market.

Offering its first earnings projection since closing its $95-billion merger, AOL Time Warner also announced several new marketing alliances, predicted AOL would begin offering high-speed Internet access on Time Warner cable lines later this year and hinted it might hike monthly AOL rates.

The much-anticipated 2001 financial projections essentially reaffirmed the company’s previous targets. But in recent months, investors have grown increasingly anxious about whether AOL Time Warner would be able to realize the savings and synergies originally promised.

“They are in good control of the underlying operations and seem to have the integration process in hand,” said CIBC World Markets analyst John Corcoran. “I have more confidence in their ability to make their numbers.”

Corcoran said he was particularly impressed by AOL’s subscription base, which gained another 2.1 million members in the fourth quarter to reach 26.7 million worldwide, and by the online company’s strong advertising and e-commerce revenue, which surged 65% over last year’s fourth quarter.

“Even though the outside environment is slowing down, AOL continues to do well,” Corcoran said. “It’s the engine that drives all the other parts of this business.”

AOL Time Warner executives warned of a probable seasonal slowdown in the first three months of this year, but they stressed that the company remained committed to year-end targets. The company expects revenue this year to grow by 12% to 15%, to $40 billion, and adjusted earnings (before interest, taxes, depreciation and amortization) to hit $11 billion, up 30%.

“We are paying a lot of attention to top-line revenue growth,” said Gerald Levin, chief executive at AOL Time Warner.

Key to that growth, Levin said, will be leveraging the company’s subscriber base, which totals 130 million consumers worldwide of AOL, People magazine, HBO and a host of other products. Altogether, the company estimates its products and services “touch” consumers a whopping 2.5 billion times a month.

Wednesday’s investment conference followed a flurry of announcements and actions since the company closed its merger three weeks ago, including the elimination of 2,400 jobs, a reshuffling of division heads and a $5-billion stock buyback.

The company expects to realize $1 billion in merger-related savings, including as much as $300 million from the job cuts and $100 million by paying some managers less cash salary in exchange for stock options.

According to AOL Time Warner’s report, AOL’s strength helped offset weaknesses in other parts of the company, particularly the film business, where fourth-quarter adjusted earnings fell 16% stemming, in part, from the box-office flop, “Little Nicky.”

On a combined basis, AOL Time Warner reported pro forma revenue of $36.2 billion and adjusted earnings of $8.3 billion. After accounting for some one-time charges, the company reported a pro forma net loss of about $4.4 billion. Since the companies did not merge until Jan. 11, the figures represent what AOL Time Warner would have reported had they been combined during the year.

Some analysts were expecting the company to announce an increase in the monthly fee for AOL users from $21.95 to perhaps $23.95. AOL Time Warner Chief Financial Officer J. Michael Kelly said it would be unwise to raise rates so quickly after the merger. “It really is just at matter of time,” Kelly said.

To help calm investor worries about the advertising slowdown, the company noted that it was already reaping the benefits of its larger size. It announced marketing deals with Nortel Networks Corp., Cendant Corp., Compaq Computer Corp. and PurchasePro, a business-to-business e-commerce company.

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Hot Stock, Again

AOL Time Warner shares have rocketed since year’s end as investors have rushed back in. (The price shown here is for the merged company since Jan. 12 and for AOL stock alone before that.)

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AOL Time Warner, monthly closes and latest on the New York Stock Exchange

Wednesday: $52.56, down $1.75

Source: Bloomberg News