Warner Music Earnings: Streaming Drives Growth, but Some Tailwinds Will Abate

Warner Music reported good fiscal second-quarter results, with strength in music publishing and streaming driving 7% year-over-year sales growth despite the loss of revenue from record label BMG and a slight decline in physical sales due to the timing of album releases. Restructuring and impairment charges led to a 4% decline in operating income, but adjusted operating income, excluding depreciation and amortization, or OIBDA, grew 9%, good for about one half of 1 percentage point of margin expansion. Margin expansion and high-single-digit sales growth are in line with our multiyear forecast. We’re maintaining our $36 fair value estimate and see shares as fairly valued.