AOL Time Warner Reduces Forecast

AOL Time Warner Inc. warned Monday that it now expects slower growth in earnings and revenue this year because of a slump in advertising, which was worsened by the Sept. 11 terrorist attacks.

The announcement was made after the close of regular trading, and sent the company’s shares down to $31.13. The shares had closed up $2.65 at $32.50 on the New York Stock Exchange.

AOL Time Warner said it now expects full-year revenue to grow by 5% to 7%, down from previous estimates of 12% to 15%. It also expects earnings before interest, taxes, depreciation and amortization to grow about 20%, down from previous estimates of 30%.

Numerous other media companies have also warned of slower earnings following the attacks, including Viacom Inc., Walt Disney Co., and Tribune Co., publisher of the Los Angeles Times, as well as newspaper publishers Gannett Co. and Knight Ridder.

Advertising spending had been in a slowdown before the attacks, and now with the country gearing up for military action against the suspected terrorists, advertisers are pulling back even more. Any media company that relies on advertising is going to feel the pinch.

Even before the attacks, questions had been emerging about AOL Time Warner’s ability to meet the aggressive growth targets it had set for itself.

In announcing its second-quarter earnings, the company scaled back expectations for its full-year revenue, saying its goal of $40 billion would be at the high end of the range. The company had stuck by its earnings projections for the year, however.

At the same time that advertising is falling, AOL Time Warner’s expenses for covering the ongoing story are rising at the company’s news-driven operations including CNN, Time magazine and the New York cable news channel NY1.

AOL Time Warner had cut jobs at its America Online unit in August and raised the price of its flagship Internet service in a move that analysts had expected to act as a buffer against the deteriorating ad climate.

Still, many analysts had begun to question whether the company would be able to hit its aggressive targets amid economic uncertainty, and the recent attacks exacerbated the already weak ad picture.

As a result, many analysts cut their forecasts in the last week.