Time Warner Earnings Preview: Lower Film Revenue, Strong Cable Distribution

Time Warner Inc. (NYSE: TWX), the world's second-largest entertainment conglomerate by revenue, is expected to post slightly lower second-quarter earnings as film profits decline but international cable distribution remains strong.

The New York-based company, reports earnings on Wednesday, before the market opens. It is expected to have earnings of 58 cents per share, down from 60 cents per share in the prior year, according to Zacks. Revenue is expected to decline slightly to $6.97 billion from $7.03 billion in the prior year, according to Zacks.

One of the company's strongest assets is its overseas distribution, particularly for its cable networks, which make up around 70 percent of Time Warner's profits. its flagship channel, CNN, has suffered lower ratings and president Jim Walton said he would resign at the end of the year. But the division is still expected to contribute $600 million in profits for the year thanks to its presence in 190 countries, leading to distribution and affiliate fees. Time Warner's HBO also continues to earn accolades from critics and high viewership, and it is expanding on other devices with services including HBO Go.

"While the network has not generated domestic paid subscriber growth during the last five years, HBO has benefited from fee increases and international subscriber growth," wrote Michael Corty, an analyst with Morningstar, in a May research report.

Television and film accounts for around 20 percent of Time Warner's profits. During the second quarter, Warner Bros. Pictures released the Tim Burton film "Dark Shadows" and the romantic comedy "The Lucky One." The action titles "Journey 2: The Mysterious Island" and "Wrath of the Titans," released in the first quarter, also contributed to profits. A significant percentage of ticket sales -- around two thirds, according to Box Office Mojo -- came from outside the U.S. In May, Time Warner announced that it had exceeded $1 billion in foreign ticket sales in the first five months of the year.

However, the company's film division appears to have had a stronger performance last year, particularly with blockbuster "The Hangover Part II," which grossed over $581 million worldwide after opening in May 2011, according to Box Office Mojo. Action films "Green Lantern" and "Unknown" were also top performers.

Profit is expected to grow in the third quarter of this year largely because of "The Dark Knight Rises," the final film in the Christopher Nolan's Batman trilogy, which has already grossed over $500 million worldwide in one month.

Time Warner's publishing division, which includes magazines like Time, People and Sports Illustrated, continues to face a challenging advertising climate, but its performance won't have a significant impact on its financials. The company hired Laura Lang from the advertising agency Digitas to run the Time Inc. division in January. She has expanded digital offerings, partnering with tablet like Next Issue.

Time Warner's major rivals are the Walt Disney Co. (NYSE: DIS) and News Corp. (Nasdaq: NWSA).

Shares of Time Warner gainted 55 cents, or 1.43 percent, to $39.13 in Tuesday afternoon trading.