Time Warner Reports a Loss of $62 Million

Time Warner Inc. reported a first-quarter loss as shrinking profit at its music division offset gains in its cable television systems and cable channels such as HBO and TNT.

The world’s largest media company said it lost $62 million, or 25 cents a diluted share, matching the average estimate of analysts. In the year-earlier period, it had a profit of $52 million before a charge, or a loss of 5 cents after the payment of preferred dividends.

The music business, hurt by an industry slump and delays in releases by key artists such as Madonna, hasn’t made the recovery Chairman Gerald Levin promised for later this year. Still, record cash flow from its other businesses such as cable helped Time Warner to shed debt and cut interest expenses.

“They had another tough quarter in music, but this company just works,” said analyst Barry Hyman at Ehrenkrantz King Nussbaum Inc.

New York-based Time Warner shares eased 13 cents to close at $77.88 on the New York Stock Exchange after hitting a record $79 earlier in the day.

The stock is up more than 90% in the last year on Time Warner’s improved finances. It made money last year for the first time since 1992, led by cable systems, Levin’s and co-Chairman Ted Turner’s push to slash costs, and rising profit at the TV channels that came with the 1996 purchase of Turner Broadcasting Systems Inc. It last posted a per-share profit in 1988.

Combined operating cash flow, or earnings before interest, taxes and amortization, from Time Warner and its partnership with US West Media Group rose 2.5% to a record $852 million--in line with expectations. Revenue rose 7.3% to $6.05 billion from $5.64 billion.

Meanwhile, Levin said the company is on track to surpass last year’s record cash-flow results. The company hopes to start a major share repurchase program by year’s end.

Levin’s recovery plan reached another milestone Wednesday when Fitch IBCA raised the company’s debt rating to BBB from BBB-. Fitch credited Time Warner’s efforts to reduce its debt, which the company two weeks ago said was $16.4 billion, by more than $2 billion in two years.

That helped Time Warner reduce interest expenses 3% to $283 million in the quarter.

Investors and analysts are hoping Levin will continue to whittle down the debt. The company cut about $700 million in the quarter through the sale of assets such as its stake in Six Flags Entertainment Corp. and a restructuring of its interest in Primestar Partners, the direct-broadcast satellite company.

“We need to see that Levin’s plans will unfold this year,” said Frederick Moran, an analyst with Furman Selz.

Warner Music, whose cash flow fell 21% to $93 million, has dragged down earnings for more than a year.

The unit’s revenue and cash flow have been hurt as top-selling artists such as Van Halen pushed back the release of their newest albums. Two of those delayed works--Madonna’s “Ray of Light” and Eric Clapton’s “Pilgrim”--rank fourth and seventh, respectively, on Billboard’s chart of best-selling albums.

Warner, which accounts for 15% of Time Warner’s consolidated revenue, is the nation’s largest music company.

Analysts predict the music unit will start to turn around in the second quarter. Its schedule of new releases is getting on track, and a new management team has focused on boosting overseas sales--a move analysts expect will pay off later this year.

“We think we’ve seen the last of the down performances for music,” Moran said.

Time Warner was also hurt by its TBS film division, which posted a loss of $15 million, contrasted with profit of $6 million, because of disappointing films such as “Palmetto.”