PROFITS REBOUND AT TIME WARNER; FIRM'S FORTUNES BOUNCE BACK AFTER LENGTHY SLUMP, CRITICISM.

Byline: Dave McNary Daily News Staff Writer

Time Warner Inc., completing the transformation from Wall Street dog to darling, reported Wednesday quarterly profits more than tripled over the 1997 period. Shares of the company set their third consecutive high.

The world's largest media-entertainment concern posted second-quarter results that came in far above Wall Street estimates, thanks to record profits in cable, magazines and the Burbank-based Warner Bros. film and TV operations.

``This is a blow-out quarter,'' said analyst Barry Hyman of Ehrenkrantz King Nussbaum.

Shares of Time Warner, viewed with disdain as little as two years ago when it was completing the acquisition of Turner Broadcasting System, jumped 1.875 to 93.125 and at one time touched 96.50.

The issue had gained 4.25 in the previous two sessions on bullishness about the company's outlook and is now up better than 60 percent since mid-January. It has more than doubled in value over the past year from 45.375.

The stock price gains represent a massive attitude change for Wall Streeters, who spent years deriding Chairman Gerald Levin over the stock's poor performance following the 1989 merger that created Time Warner and the $7 billion TBS deal. As little as two years ago, many investors hoped the board would oust Levin in favor of Vice Chairman Ted Turner.

Instead, Time Warner has become one of the engines driving the bull market's rally. ``You now have a company that's running on all cylinders,'' Hyman said. ``TBS has been a great acquisition.''

In the second quarter of 1998, New York-based Time Warner earned $101 million, or 4 cents a diluted share, compared with 1997 quarterly profits of $30 million, which equaled a loss of 9 cents a share. Analysts had expected a loss of 4 cents a share this quarter.

Revenues rose 10 percent to $6.53 billion and cash flow, a key Wall Street indicator for entertainment companies with large debt loads, rose 17 percent to $1.16 billion. Levin has forecast annual cash flow gains of 16 percent to 17 percent over the next three years.

``We are well on our way to another record-breaking year,'' Levin said in a statement.

Cable operations set records in all three sectors. The TBS channels, including TNT, TBS, Cartoon Network and CNN, posted a 20 percent gain in cash flow to $198 million; HBO cash flow rose 15 percent to $113 million; and cable systems, which have 11.9 million customers, jumped 29 percent to $448 million with asset sales adding $70 million.

Publishing cash flow rose 12 percent to $176 million due to advertising gains at Fortune, In Style and People, and improved circulation at People, Time and Entertainment Weekly.

Warner Bros. cash flow gained 12 percent to $122 million due to higher TV production and distribution revenue from shows such as ``ER'' and ``Friends'' and solid box-office returns from ``City of Angels'' and ``A Perfect Murder.'' TBS Filmed Entertainment rose 31 percent from the syndication of Castle Rock's ``Seinfeld'' and New Line's release of ``Lost in Space.''

``These are solid results all around,'' said analyst Harold Vogel of Cowen & Co. ``All their problem areas seem to be turning around. The strategies that Levin and Turner have implemented seem to be working quite well.''

The only second-quarter laggards were Warner Music Group, with cash flow down 9.4 percent to $96 million due to poor results from direct-marketing such as Columbia House, and the WB television network with a $23 million quarterly loss. Analyst Jill Krutick of Salomon Smith Barney said the music business, which includes recording artists Madonna and Eric Clapton, is showing signs of a rebound.

Time Warner has sliced $2 billion in debt during the past two years through moves such as selling off its stake in Six Flags theme parks and has pledged to further reduce the load from the current $16.4 billion. It also plans to cut $700 million in operating costs by next year.

Duff & Phelps, Fitch and Moody's Investors Service have upgraded their debt ratings this year. Time Warner finished in the black last year for the first time since 1992, earning $246 million due to cost cutting, TBS properties and ad gains from the strong economy.

MediaOne, formerly named U.S. West Media, owns 25 percent of Time Warner's entertainment properties.

In a development that may foreshadow the merging of cable and phone service, Levin disclosed Wednesday that Time Warner has discussed leasing cable lines to long-distance phone companies such as AT&T Corp. to provide local service. AT&T agreed last month to buy cable operator Tele-Communications Inc., which has 10 million subscribers.

CAPTION(S):

6 Photos, Chart

PHOTO (1--Color) GERALD LEVIN

(2--Color) TED TURNER

(3--6--Color) no caption (Collage of Time Inc. magazines, Eric Clapton, scene from the movie `Lost in Space' and the cast of the TV show `Friends')

CHART: TIME WARNER`S UPWARD SWING

Stock of media-entertainment giant Time Warner has impressed Wall Street by more than doubling in value during the past year, rising from $45.375 to Wednesday's close at $93.125.

SOURCE: Bloomberg News

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