Time Warner, which rejected a takeover bid by Rupert Murdoch’s 21st Century Fox, reported higher second quarter earnings and announced a large stock buyback plan.
The $80 billion offer for the company was withdrawn by Fox yesterday, which made Time Warner stock drop 10% in after-hours trading.
Time Warner said that second-quarter net income rose 10% to $850 million, or 95 cents a share, from $771 million, or 83 cents a share, a year ago.
Revenue rose 3% to $6.8 billion.
“We had another strong quarter, reflecting the strength of our businesses and our potential for continued growth as we deliver on our strategic plan to be the world’s leading video content company," CEO Jeff Bewkes said in a statement. He pointed to new successful new series on Turner Broadcasting’s cable networks and the strong performance of Warner Bros. in producing at least two primetime series for each of the broadcast networks. “Further demonstrating our commitment to shareholder returns, so far this year we’ve returned over $4 billion to our shareholders in the form of share buybacks and dividends, and our board in June approved an additional $5 billion of share repurchases,” he added.
Stock buybacks are popular with investors, but usually don’t boost share prices as much as the possibility of a takeover. In rejecting the offer from Murdoch, the company said its current strategy would lead to growth. The second quarter figures exceeded Wall Street expectations for earnings, but not for revenue.
The company also reaffirmed its outlook for 2014, saying it expects adjusted earnings per share growth to be in the low teens.
When Time Warner holds its conference call with analysts later this mornings, Todd Juenger of Sanford C. Bernstein, expects management to strike a matter-of-fact tone about the fizzled takeover battle, saying simply that they rejected an inadequate offer and now it’s back to business as usual.
“Time Warner has been arguing their stock should be worth far more than $85 on its own. Now it looks like they'll get the chance to prove it,” Juenger said in a research note.
Juenger said that while consolidated revenue was lighter than expected, earnings per share well exceeded forecasts. "We had expected an EPS beat (although not of this magnitude),” he said. "No way they would miss EPS when they (believed they were in) M&A battle mode, arguing the merits of their stand-alone strategy.”
Operating income at Turner increased 14% to $929 million as higher programming costs were offset by lower marketing expenses. The NCAA tournament was the biggest reason for the higher programming costs.
Turner’s revenues rose 5% to $2.8 billion as subscription revenues increased 8%. Advertising revenues were up 1%. Airing two semifinal NCAA tournament games led to higher prices for Turner, but those gains were offset by lower audience deliver and demand for other programming.
HBO’s operating income rose 19% to $548 million including a gain from the acquisition of HBO Nordic. Programming costs at HBO grew 11% as the amount of programming increased.
HBO revenues rose 17% to $1.4 billion as subscription revenues rose 10% because of higher domestic rates and overseas consolidation, while content revenues jumped 56% because as programming was licensed to Amazon Prime Instant Video.