Analyzing Highfields Capital Management's 3Q14 positions (Part 3 of 10)
Highfields Capital and Time Warner
Highfields Capital started new positions in Enbridge Inc. (ENB), Time Warner Inc. (TWX), and Michaels Companies Inc. (MIK). It sold positions in Broadcom Corp. (BRCM) and MetLife Inc. (MET). It increased its positions in Dollar Tree Inc. (DLTR) and Family Dollar Stores (FDO). It reduced its stake in Canadian Natural Resources (CNQ) and Eli Lilly & Co. (LLY).
Highfields Capital initiated a new position in TWX in the third quarter. The position accounts for 1.64% of the fund’s 3Q14 portfolio.
Overview of TWX
Time Warner is a global leader in media and entertainment. It has businesses in television networks as well as film and television entertainment. Its media brands include HBO, CNN, TNT, TBS, Cinemax, Warner Bros., and New Line Cinema. It mainly operates in three segments—Turner, HBO, and Warner Bros.
TWX completes spin-off of Time Inc.
In June 2014, TWX completed the previously announced spin-off of its magazine unit Time Inc. (TIME). It said the move provides strategic clarity for the company. The spin-off allows TWX to focus on its television networks and film and television production businesses. It can also focus on improving its growth profile. After the spin-off, TIME will continue to be the leading multi-platform publishing and branded content company.
Turner and HBO drive 3Q14 revenues
Revenues increased 3% to $6.2 billion in 3Q14. The increase was mainly due to 10% growth in subscription revenues for Turner and HBO. Adjusted earnings per share, or EPS, increased 34% to $1.22. The increase in adjusted EPS reflects lower taxes. The lower taxes were a result of a net tax benefit of $639 million. The net tax benefit was related to the reversal of certain tax reserves in 3Q14. There were also fewer outstanding shares.
Adjusted operating income decreased 38%. The decrease was due to charges at Turner. The charges were related to its decision not to air certain programming. The decrease was also due to restructuring and severance charges across all of its segments.
3Q14 results by segment
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Turner’s revenues increased 5%. This was mainly due to 10% growth in subscription revenues and 17% growth in content revenues. It was partially offset in by a 2% decline in advertising revenues.
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HBO’s revenues grew 10%. This reflected a 10% increase in subscription revenues and a 7% increase in content revenues.
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Revenues from Warner Bros. increased 3%. This was mainly due to growth in subscription video-on-demand revenues for television products and higher licensing of theatrical products. The division also had growth in television production. The growth included the acquisition of Eyeworks Group’s operations outside the US. It also included revenues from a patent license and settlement agreement.