TWC Reports Strong 3Q
Lowers Year-End Guidance
By Mike Farrell -- Multichannel News, 11/5/2008 5:37:00 AM
Time Warner Cable reported strong third quarter results—basic subscriber losses were better than analysts’ predictions—but the cable giant slightly missed its own guidance for revenue and cash flow growth in the period, forcing it to lower its estimates for the year.
Time Warner Cable said it lost 31,000 basic subscribers in the third quarter, well below the loss of 69,000 basic customers some analysts had predicted. The company added 124,000 digital cable subscribers, 214,000 high-speed data customers and 200,000 digital phone customers in the quarter.
But revenue and cash flow growth—at 8% and 9%, respectively—just missed TWC’s own aggressive targets—to meet its full-year estimate of 9%-11% cash flow growth it needed to report a 10% increase or greater in the quarter. As a result, the media giant lowered its full year guidance to 8% growth in both metrics.
Investors appeared to take the new guidance in stride—TWC shares were up 12 cents each (0.6%) in early trading Wednesday to $20.68 per share.
In a research report, Sanford Bernstein cable and satellite analyst Craig Moffett wrote that although TWC stumbled a bit in missing its guidance, overall the quarter was a good one for the cable operator.
Moffett noted that cash flow guidance accelerated in the period from 7.5% in the first half of the year to 8.8% in the third quarter, but the company needed that growth to be 10% or greater to reach its previous guidance.
“The question is, does it matter?” Moffett asked, adding that the mismatch between TWC’s guidance and analyst consensus estimates indicated that “nobody believed them anyway.”
Moffett argued that given the current economic climate, slightly missing 10% growth targets in a quarter “would seem a prince's problem.” And he used the market’s reaction to Comcast’s third quarter numbers—which were slightly below estimates but nevertheless strong given the state of the economy. Comcast stock, down initially after reporting third quarter results Oct. 29, is up about 16% ($2.49 per share) since.
Moffett also added that TWC’s new guidance is beatable—it would have to post cash flow growth of 7.2% to meet the 8% full year mark—which also could be good news for the stock.
“TWC's sustained growth and share gains bode well,” Moffett wrote. “And the fact that consensus expectations will now actually need to come up to meet TWC's lowered guidance makes a further case for the glass (more than) half full.”
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