Warner Bros Equities (-12%) Under Pressure on Earnings

Warner Bros falls in headline misses & lack of explicit FY24 EBTIDA/FCF guidance; leverage targets unch & progress in-line with previous guidance; $1b FY25 EBITDA guidance left unch

* Warner Bros {WBD US Equity} (Baa3, BBB-, BBB-; S) equities are the largest fall in $IG - it does have a single €600m March 2027 that is unch. Despite revenue & EBITDA missing, it posted above expectations FCF in 4Q at $3.3b (c$2.6b & +33%yoy) which it attributed to lower content spend & working capital improvements.

* Growing FCF has allowed it to pay down $1.2b in debt ($5.4b in '23) and bring net leverage down to 3.9* (vs. 4.2* last qtr & 5* last yr) & is in line with last yr's guidance for <4*. Its left long-term target unch at 2.5*-3* & again "does not expect to hit it by end of this year" (vs. initial "by 2024" target pre-Q3).

* WBD is a highly levered IG name - i.e. deleveraging is expected for current ratings - weak headline performance (which seems to be equities take) may increase reliance on asset sales (it confirmed $1.45b All3Media sale last week) to meet the required pace. No firm view from us on the name/27s but we would note its flagging the seasonal weakness ahead in Q1 & net cash benefits from strikes last yr to reverse negatively impacting FY24 FCF (it est's net -$1b reversal in FCF).

* The 27's look to trade in line with broader BBB- names - not much px action of recent - its maintained a 40bp discount to the Netflix 27's (Baa2 Pos, BBB+ S).