Time Warner Inc. (TWX - Analyst Report) posted third-quarter 2014 adjusted earnings of $1.22 per share that surpassed the Zacks Consensus Estimate of 94 cents, reflecting strength across Turner, Home Box Office (HBO) and Warner Bros. The company's investments in video content and technology continued to show results.

This Zacks Rank #3 (Hold) stock now expects high-teens growth in adjusted earnings per share for 2014 against low-teens increase forecast earlier. Shares of Time Warner have risen 5.7% during the pre-market trading session.

Time Warner Inc - Earnings Surprise | FindTheBest

Time Warner's total revenue of $6,243 million jumped 3% year over year and came ahead of the Zacks Consensus Estimate of $6,129 million.

Adjusted operating income plunged 38% to reach $993 million due to restructuring and severance costs witnessed across all divisions as well as charges associated with the stopped airing of certain Turner programming.

In a strategic move to unlock the value of its core business activities, Time Warner spun off its magazine division into a separate, publicly traded company, Time Inc. (TIME - Snapshot Report). Time Warner had earlier divested Time Warner Cable Inc. (TWC - Analyst Report) and AOL Inc. into independent companies. The company now concentrates purely on television networks and film and TV production businesses.

After thwarting an $80 billion bid by Rupert Murdoch, CEO of Twenty-First Century Fox, Inc. (FOXA - Analyst Report), Time Warner has taken restructuring aggressively. As per an internal memo, Time Warner, which is confident of performing better as a standalone company, will be focusing on original programming, reducing costs and increasing investments in key areas to enhance profitability. According to media reports, the company has undertaken headcount reduction as part of its restructuring.

Segment Details

Turner division's revenues rose 5% to $2,446 million, driven by growth of 10% in subscription revenues and 17% in content revenues, partially offset by a 2% decrease in advertising revenues. Higher subscription revenues were primarily attributed to a rise in domestic rates and international growth. Advertising revenues declined due to fall at Turner's international networks.

Adjusted operating income for the segment plummeted 64% to $350 million due to steeper in programming expenditures and higher restructuring and severance charges.

Time Warner's HBO segment revenues grew 10% to $1,304 million driven by growth of 10% in subscription revenues and 7% in content revenues. Higher subscription revenues were primarily attributed to a rise in domestic rates and subscribers and the merger of HBO Asia and HBO South Asia. On the other hand, content revenues increased on account of a rise in home video revenues.

Time Warner will also launch an independent online streaming service from this division to target consumers who have access to the Internet but are not subscribers of cable.

Adjusted operating income for the division declined 4% to $380 million because of increased programming and distribution expenses as well as higher restructuring and severance charges.

Warner Bros. revenues advanced 3% to $2,775 million buoyed by an increase in video-on-demand revenues for television product, rise in licensing of theatrical product and growth in television production, partially offset by a sluggish theatrical performance.

Adjusted operating income for the division fell 20% to $241 million due to higher restructuring and severance charges, increase in film costs for television product and a value added tax accrual.

Other Financial Aspects

Time Warner ended the quarter with cash and equivalents of $3,210 million, long-term debt of $21,389 million and shareholders' equity of $25,230 million.

During the quarter, Time Warner incurred capital expenditures of $110 million and generated free cash flow of $575 million. From Jan 1 through Oct 31, the company bought back about 69 million shares, aggregating approximately $4.9 billion. As of Oct 31, the company still had $5.1 billion remaining at its disposal.