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For Rothbort's thoughts leading up to the Time Warner call, click here.
Time Warner (TWX - commentary - Trade Now) continues to clean up its financial condition by spinning off units such as Time Warner Cable (TWC - commentary - Trade Now) and AOL. Unfortunately, no solution seems to exist for the troubled publishing business. The core remaining businesses of filmed and network entertainment are performing well given the state of the global economy. TWX is not as cheap as it once was -- the stock is now selling at 15 times fiscal 2009 earnings guidance and 13.5 times fiscal 2010 estimates. Unless you expect earnings to grow at more than 10%, the stock appears to be a hold rather than a buy. The company reported adjusted earnings of 61 cents a share on revenue of $7.135 billion vs. expectations of 53 cents a share and $7.08 billion. The better-than-expected performance was attributed to results from HBO, Turner Broadcasting and Warner Brothers. Revenue declined 6% from the year-ago period. Advertising (down 12%), filmed entertainment and network results faced difficult year-over-year comparisons, especially compared to the 2008 election year. Furthermore, the company was also hurt by unfavorable currency translations. Results by segment:
The company has generated free cash flow of $3.031 billion so far this year, a 61% conversion ratio to adjusted OIBDA. $1 billion of free cash flow was generated during the just-completed third quarter. Net debt was reduced from $20.7 billion at the end of fiscal 2008 to $10.4 billion at the end of the third quarter. $9.3 billion of that reduction was due to a special dividend with Time Warner Cable -- the effect was to shift debt to Time Warner Cable from TWX. Time Warner ended the quarter with about $7 billion of cash. Year-to-date stock repurchases and dividends each expended $700 million of cash. $2 billion of cash will be used to repay debt due to mature in the fourth quarter. No positions.
At the time of publication, Rothbort had no positions in the stocks mentioned, although positions can change at any time. Scott Rothbort has over 20 years of experience in the financial services industry. In 2002, Rothbort founded LakeView Asset Management, LLC, a registered investment advisor based in Millburn, N.J., which offers customized individually managed separate accounts, including proprietary long/short strategies to its high net worth clientele. He also is the founder and manager of the social networking educational Web site TheFinanceProfessor.com. Immediately prior to that, Rothbort worked at Merrill Lynch for 10 years, where he was instrumental in building the global equity derivative business and managed the global equity swap business from its inception. Rothbort previously held international assignments in Tokyo, Hong Kong and London while working for Morgan Stanley and County NatWest Securities. Rothbort holds an MBA in finance and international business from the Stern School of Business of New York University and a BS in economics and accounting from the Wharton School of Business of the University of Pennsylvania. He is a Term Professor of Finance and the Chief Market Strategist for the Stillman School of Business of Seton Hall University. For more information about Scott Rothbort and LakeView Asset Management, LLC, visit the company's Web site at www.lakeviewasset.com. Scott appreciates your feedback; click here to send him an email. Brokerage Partners
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