- The Washington Times - Thursday, July 19, 2001

Shares of AOL Time Warner dropped nearly 10 percent and hit a three-month low yesterday after the company said it fell short of second-quarter earnings estimates.

AOL Time Warner, hurt by a slow advertising market since the completion of its merger six months ago, announced yesterday that it missed analysts' revenue predictions by about $500 million and would have to fight to reach its yearly estimate of $40 billion in sales.

Shares of the company dropped $4.80 to close at $44.65 yesterday on the New York Stock Exchange.

Company executives said in a conference call yesterday that the sales target for the year is now at the "high end" of expectations, following an announcement that second-quarter revenue rose 3.3 percent to $9.2 billion, but failed to reach estimates of $9.7 billion. Despite this, the company's earnings per share during the quarter was 32 cents, or 3 cents higher than analysts had predicted.

AOL Time Warner's yearly goal of $11 billion in cash flow is still likely, analysts said, but given the company's second-quarter losses, reaching the $40 billion yearly revenue target will be a struggle.

"I think it's a very challenging target at this point," said John Corcoran, analyst with CIBC World Markets. "They really have to have a home run fourth quarter."

A big fourth quarter is not out of the question, said Mr. Corcoran, who rates the stock a "strong buy."

"For them, in light of their content business, they clearly are loaded with back-end opportunities," he said.

Those opportunities include the release of the much-anticipated film "Harry Potter and the Sorcerer's Stone" at Thanksgiving and numerous music releases.

AOL Time Warner executives were optimistic.

"Our subscription businesses are continuing to show robust growth and, as planned, we are looking forward to a strong second half from film and music," AOL Time Warner CEO Gerald Levin said. "We've just begun to tap our enormous potential."

Less-than-stellar box office returns from Warner Brothers films "Driven" and "A.I.: Artificial Intelligence" hurt company earnings in the second quarter. The music and publishing sectors combined pulled in $115 million less than last year's second quarter.

The company was especially hurt by sagging advertising sales as the economy slowed. It attributed 66 percent of the second-quarter revenue shortfall to "advertising and commerce" revenue. Ad sales in the company's networks division slipped 8 percent.

"The biggest risk remains trends in the advertising market," Morgan Stanley analysts wrote in a report released yesterday.

But some analysts said a slow advertising market could have a positive effect on the company in the long run. AOL Time Warner was the second-largest advertiser in the nation during the quarter, partly because it began filling empty ad spots with pitches for its own brands. It is a move that analysts say brings in no money immediately but can insert the company name and products into the public consciousness.

"They can reinforce their own brand that way," said James Goss, an analyst with Barrington Research.

Meanwhile, AOL Time Warner continues to rely on subscribers to its Internet and cable television services, making it less vulnerable to the ad market than other companies, analysts said. Revenue from the company's Internet and cable businesses increased $462 million, or 12 percent, over the comparable quarter last year.

Among other area companies reporting earnings yesterday:

U General Dynamics Corp., the Falls Church defense contractor, reported that net income for its second quarter ended July 1 rose 11 percent to $227 million ($1.12 diluted) from $204 million ($1.01) for the like quarter the previous year.

U Freddie Mac, the McLean buyer of home mortgages, reported that net income for the second quarter ended June 30 rose 9 percent to $914 million ($1.29 diluted) from $837 million ($1.13) for the like quarter the previous year.

U Charles E. Smith Residential Realty Inc., an Arlington real-estate investment trust, reported that funds from operations for its second quarter ended June 30 grew 24 percent to $44 million ($1.00) from $35.6 million (91 cents) for the like quarter the previous year. Net income fell 1 percent to $15.7 million (68 cents) from $15.8 million (75 cents).

U Crestline Capital Corp., Bethesda parent company of Crestline Hotels and Resorts, reported that net income for its second quarter ended June 15 fell 36 percent to $7.1 million (44 cents diluted) from $11.1 million (65 cents) for the like quarter the previous year.

U Community Bank of Northern Virginia of Sterling reported that net income for the second quarter ended June 30 rose 38 percent to $1.8 million (19 cents diluted) from $1.3 million (15 cents) a year ago. Assets increased 47 percent to $504.2 million from $342.5 million the previous year.

U James Monroe Bancorp Inc. of Arlington reported that net income for the second quarter ended June 30 rose 10 percent to $233,000 (23 cents per diluted share) from $212,000 (28 cents) for the like quarter the previous year. Assets increased 70 percent to $118.1 million from $69.8 million the previous year.

LOAD COMMENTS ()

 

Click to Read More

Click to Hide