NEW YORK Time Warner on Wednesday said it would post a net operating loss for 2008 after certain fourth-quarter reversals caused the company to write down the value of its cable, publishing and AOL units to the tune of around $25 billion.
The media conglomerate said the cratering economy has had a more stifling effect on its advertising business than it had anticipated, particularly at AOL and the Time Inc. units.
Also contributing to the revised outlook: a $280 million judgment against Turner Broadcasting System related to the 2004 sale of its winter sports teams and the sudden loss of $50 million-$60 million in rent that was once paid by former Time-Life Building tenant Lehman Brothers.
Another $40 million in goodwill charges related to customers who recently declared bankruptcy is also being added to TWX’s tab. Among those who left the company holding the bag was the big-box electronics retailer Circuit City, which filed for Chapter 11 protection on Nov. 10, 2008.
All told, TWX will record between $370-380 million in the fourth quarter of 2008 that will reduce full-year financials. The company is expected to report its fourth-quarter results on Feb. 4.
In November, TWX said it expected 5 percent growth in adjusted operating income before depreciation, notching $13.6 billion, up from a base of $12.9 billion the previous year. It now anticipates only 1 percent growth. And while TWX did not give guidance on the net loss it now foresees, in its third-quarter earnings call, the company had projected diluted earnings per share between $1.04 and $1.07.
Despite the ravages of a slumping advertising market, Time Warner’s cable networks unit enjoyed a robust third quarter, upping its ad sales revenue by 9 percent versus the prior-year period, to $772 million.
Total revenues at the networks group, which includes the Turner Broadcasting entities TNT, TBS, Cartoon Network and CNN, as well as the premium channel HBO, climbed 7 percent, or $176 million, to $2.73 billion. Along with the advertising gains, network revenue was goosed by 10 percent year-to-year growth in subscription/affiliate revenue.
Along with the Time Warner Cable business, the Turner nets are seen as TWX’s most reliable asset. Still, chairman and CEO Jeff Bewkes said that the company is less exposed to the capriciousness of the advertising marketplace, as just 22 percent of TWX’s total revenue is derived from ad sales.
“Even where we have ad exposure we’re relatively well positioned,” Bewkes told investors in November. “More than a third of our advertising comes from our cable networks business. And while Turner would not be immune to a prolonged ad downturn, it is advantageously situated within both the television business and in relation to most other ad-based businesses.”
In late-morning trading Wednesday, shares of Time Warner dropped 6.38 percent, or 70 cents, to $10.28.