Time Warner beats expectations, raises outlook

November 2, 2016 7:09 AM EDT

A Time Warner logo is seen at a Time Warner store in New York City, October 23, 2016. REUTERS/Stephanie Keith/File Photo


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By Jessica Toonkel and Rishika Sadam

(Reuters) - Time Warner Inc (NYSE: TWX), which has agreed to be acquired by telecom company AT&T Inc (NYSE: T), on Wednesday raised its full-year outlook and reported quarterly profit topping Wall Street expectations, powered by higher box office and cable network revenues.

Despite the strong results, shares of Time Warner, which owns HBO, CNN, Cartoon Network and the Warner Bros film studio, slipped 0.8 percent to $87.54 in New York Stock exchange trading.

"The fundamentals are great, but right now the underlying value driver is going to be the merger," said Jeffrey Logsdon, analyst at JBL Advisors LLC.

AT&T said last month it would buy Time Warner for $85.4 billion in a bold bid to acquire content to stream over its networks, valuing the media company at $107.50 per share.

Analysts and investors have signaled skepticism about the deal, pointing to possible regulatory hurdles.

"This approval process may take well over a year, possibly 18 months, and has a significant chance of not being approved, so the stock may stay at a large discount to the offer for some time," said Edward Jones senior analyst Robin Diedrich, who gives the deal a slightly better than 50 percent chance of being approved.

Time Warner Chief Executive Jeff Bewkes on the earnings call on Wednesday said he expects the transaction to close by the end of 2017, “if not sooner.”

When asked whether the U.S. Federal Communications Commission could block the deal over Time Warner transferring any of its licenses to AT&T, executives said the companies would dispose of the licenses if needed.

“We don’t have things that are material to the actual conduct of the business that AT&T would need in operating our assets,” said Paul Cappuccio, general counsel at Time Warner.

Executives said they do not expect the deal to affect Time Warner's 10 percent stake in Hulu or any other distribution agreements.

Revenue from Warner Bros, the company's biggest unit by revenue, rose 6.7 percent to $3.4 billion in the third quarter ended Sept. 30, driven by the success of movies "Suicide Squad" and "Sully."

Superhero movie "Suicide Squad," which premiered in early August, brought in around $750 million worldwide, executives said.

Revenue at the HBO unit, home to "Game of Thrones" and "True Detective," rose 4.3 percent to $1.43 billion.

The company's net income rose to $1.47 billion, or $1.86 per share, from $1.04 billion, or $1.26 per share, a year earlier.

According to Thomson Reuters I/B/E/S, Time Warner earned $1.55 per share, excluding a tax benefit of 28 cents per share and other items, beating the average analyst estimate of $1.37.

Revenue rose 9.2 percent to $7.17 billion, topping analyst expectations of $6.98 billion.

Time Warner raised its 2016 full-year adjusted EPS outlook to $5.45-$5.55 per share, excluding a tax benefit, from previous guidance of $5.35-$5.45.

(Reporting by Rishika Sadam in Bengaluru and Jessica Toonkel in New York; Editing by Sai Sachin Ravikumar and Meredith Mazzilli)



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