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CNBC Interview: Time Warner CEO Sees Stronger AOL, Little M&A

In an interview with CNBC, Richard Parsons, chief executive of Time Warner, offered his views about the firm’s quarterly results, the likelihood of acquisitions, and his annoyance with the market.

“It’s very frustrating,” said Parsons. “Despite a very solid quarter, the stock is off a buck.”

Time Warner shares on Wednesday closed down 62 cents, or 3.22 percent, at $18.64 on the New York Stock Exchange.

The CEO maintained that Wall Street should be kinder to Time Warner’s AOL unit.

“We didn’t change guidance on AOL per se," he said. "We said at the beginning of the year that AOL’s earnings will be up – and we continue to believe that.”

Parsons responded to critics who say the firm is missing the boat by dedicating funds to an announced $5 billion stock buyback, instead of seeking high-profile acquisitions like News Corp.’s buy of MySpace owner Intermix, and Google’s deal for DoubleClick.

“The first thing I’d say is that at the current levels our stock is trading at, it’s a screaming buy. It’s a very good use of our free cash flow and capacity.”

He pointed to “four or five” recent Web acquisitions made to strengthen AOL’s ad monetization platform: “They just haven’t been in the multi-billion-dollar ranges that you read about in newspapers – frankly, I just don’t see the value proposition there.”

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And despite scuttlebutt, don’t expect an AOL-Yahoo linkup anytime soon, either: “We’re focused on execution and getting it right – not focused on a transaction,” said the CEO.

As to News Corp.’s victorious pursuit of Dow Jones, Parsons is optimistic: “I don’t know that [the deal] is going to change the playing field. In terms of his interest in this asset, I think [News Corp. CEO Rupert Murdoch] has been consistent in thinking it fits nicely with what he’s trying to do.

He noted that Time Warner Cable will carry both CNBC and the upcoming Fox business news channel, and said, “We think it’s good for us. Let the games begin.”

Time Warner posted a 5.2 percent rise in quarterly profit on Wednesday as subscriber gains in its cable unit made up for slower advertising sales growth at its AOL Internet division.

The Time Warner building.
Mark Lennihan
The Time Warner building.

The company also said its board had approved the buyback of $5 billion of its stock, after essentially completing a $20 billion buyback.

The New York-based owner of AOL, the Warner Bros. movie studio and CNN said second-quarter net profit rose to $1.07 billion, or 28 cents per share, from $1.01 billion, or 24 cents per share, a year earlier.

Revenue rose 6% to $11 billion.

Excluding special items, earnings were 22 cents per share, beating the average Wall Street forecast of 20 cents, according to Reuters Estimates.

AOL's advertising sales rose 16 percent, declining abruptly from the 40 percent-plus growth the division has seen in the past four quarters. Wall Street had expected on average ad growth in the mid-20 percentage range.

"Results were weak on the whole," Miller Tabak analyst David Joyce said, but added, "With the company's announcement of the buyback, I still think this is an attractive entry point for long-term investors."

While AOL revenue fell 38 percent to $1.3 billion as it lost more paid Internet service subscribers, some analysts saw good signs in other performance yardsticks, such as the amount of time people spend on AOL.com.

"In terms of the metrics that people are looking at for AOL, it seems to be firming up," Oppenheimer & Co. analyst Thomas Eagan said.

Parsons had said last quarter the company will continue to see AOL's ad growth rise at or above industry rates, but below 40%. The company plans to review the Internet unit's performance at the end of this year.

Cable services revenue rose 59% and operating income before depreciation and amortization rose 52% helped by newly acquired cable systems. But basic video subscribers fell 57,000 during the quarter, primarily from those new systems.

Time Warner Cable ended the quarter with 13.4 million basic video subscribers.

Film division revenue fell 5% from lower TV revenues and lower home video revenues compared with last year when its "Harry Potter" videos hit the market. Box office sales of "Ocean's 13" and "300" partially offset the declines.

Time Warner affirmed earlier full-year financial targets of earnings per share of $1.07, including items, and percentage growth in adjusted operating income before depreciation and amortization at a mid-to-high-teen percentage rate. Excluding items, Time Warner expects full year earnings per share of 95 cents.

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