Time Warner have had to cut their forecast profit for 2008, largely due to the fact that the company has been forced to cut the value of their cable, magazine publishing and AOL businesses by $25 billion. The cut in profit forecasts is the first time in the last six years that Time Warner has recorded a loss.
Time Warner shares have dropped by more than 6 per cent on Wednesday and analysts have declared that the coming year will be a tough one for the media sector in terms of the economic market.
Time Warner released a statement on the subject, blaming the loss in profits on the economic climate, saying, “The economic environment has proved somewhat more challenging than the company previously expected, particularly for the advertising businesses at the AOL and publishing segments.
“Due to this impairment charge, the Company expects that it will have an Operating Loss in 2008 as compared to Operating Income of $8.9 billion in 2007. Also reflecting this impairment charge, Time Warner now expects to incur a net loss in 2008, compared to its prior outlook.”
Chief financial officer of Time Warner, John Martin, has claimed that there has been talks to increase the audience for AOL, saying, “We have been in discussions on again, off again as it relates to potential structural alternatives that could possibly get AOL greater scale. We’d still be interested in doing something like that if we could do it.”
Time Warner’s shares have dropped by 50 per cent over the past few years and this drop makes up $15 billion of the write-down. Time Warner are now declaring that they predict earnings from between $1.04 to $1.07 per share from operations this year. However this figure is down from the previous forecast by the company which was between $1.07 to $1.11 per share.
Imran Khan of JPMorgan claims that, “We believe this reflects continued cyclical and secular pressures in print advertising markets as well as soft online advertising environment and continued turnaround efforts at AOL.”
Chief investment strategist at Prudential International Investments Advisers LLC, John Praveen, claims that reviewing forecasts in this way is something that has to be expected through the economic downturn. “Companies are going to have to continue to adjust their forecasts until our current macro environment stabilizes. General expectations were that we were probably going to see earnings disappointments and downgrades with the global recession.”
Time Warner also said in their statement that, “Time Warner now expects to incur a net loss in 2008, compared to its prior outlook, as provided on November 5, 2008, of Earnings per Diluted Share from Continuing Operations in the range of $1.04 to $1.07.
“The Company is finalizing its 2008 financial results, but currently it still expects 2008 full-year Free Cash Flow will total around $5.5 billion, consistent with the outlook provided on November 5, 2008,” said Time Warner.
A fourth quarter financial review is expected to be announced on February 4th.