A Look at Time Warner’s Operational Metrics

Time Warner expects a healthy free cash flow

Time Warner (TWX) expects a healthy free cash flow by the end of this year. Its free cash flow in fiscal 1Q17 was $1.4 billion, almost double the same quarter last year. It had a leverage ratio of 2.6x at the end of fiscal 1Q17, which was below its target leverage ratio of ~2.8x. It expects it to continue to fall through 2017 as a result of discontinuing share repurchases in connection with AT&T’s (T) proposed acquisition of the company.

A Look at Time Warner’s Operational Metrics

Time Warner’s outlook for the rest of 2017

Time Warner expects its adjusted operating income in 2017 to rise in the high single digits, based on current currency exchange rates. In fiscal 2Q17, the company expects total programming costs to rise about 20.0%, driven mainly by sports programming costs as a result of Turner’s deal with the NBA (National Basketball Association).

The NBA entered into a $24.0 billion sports programming deal with TWX’s Turner Broadcasting System and The Walt Disney Company’s (DIS) ESPN in October 2014. The agreement went into effect in October 2016 and should last through 2025.

Time Warner also expects to keep investing in its SVOD (subscription video on demand) services such as the recently launched Boomerang as well as marketing expenses related to its original programming.

As a result, in fiscal 2Q17, Time Warner expects its adjusted operating income to fall for both Turner and the company.

Time Warner makes up 0.37% of the SPDR S&P 500 ETF (SPY). SPY has a 3.9% exposure to the computer sector.