Cable Operators

Confidence Fuels Stock Buybacks at Operators, Nets

6/04/2012 12:01 AM Eastern

Cable operators and programmers
continued to pump billions of dollars into repurchasing
their own stock in the first quarter, a sign of confidence in
the value of their shares and
a continuation of a concerted
effort to return cash to their
shareholders.

The four publicly traded
operators (Comcast, Time
Warner Cable, Charter Communications
and Cablevision
Systems) spent a collective
$1.2 billion on share buybacks
in the first quarter. While that
is down from the $1.3 billion
the operators spent on share
repurchases in the fourth
quarter of 2011, the numbers
were skewed by Charter
Communications, which purchased
$402 million worth of
its stock in the fourth quarter
and just $3 million in the first
quarter. Factoring out the
Charter buys — the St. Louisbased
MSO does not have a
formal buyback plan and repurchases
shares opportunistically
— and buybacks rose almost 30% for the MSO sector
in the first quarter, up from $924.4 million in Q4.

Share repurchases have been a popular way for companies
to return cash to shareholders — the other way is
through dividends, also on the upswing in the cable sector
— for several years. And
the gifts keep on coming: Most
of the major cable programmers
and operators have announced
big increases to their
share-repurchase authorizations,
with News Corp. doubling
its authorization this
year, from $5 billion to $10 billion,
and Cablevision authorizing
an additional $500 million
for its buyback program in the
first quarter. In April, Comcast
said it had increased its overall
repurchase authorization to
$8.5 billion, $3 billion of which
will be spent in 2012, a 40% increase
over the prior year. Time
Warner Cable also increased
its buyback authorization substantially
for the year.

While dividends were up as
well — 44% for Comcast and
17% for Time Warner Cable in
the first quarter — share buybacks
are a bit safer for the issuer, especially if there is any
change in the economy. It’s a lot easier to dial back a sharerepurchase
program than it is to cut a dividend, from the
standpoint of pure investor perception.

“Buybacks are a nice vanilla first step to return capital to
shareholders,” ISI Media Group media analyst Judah Rifkin
said. Returning capital to shareholders is a sign of a maturing
business, he added.

“They are showing that they are careful stewards of that
capital,” Rifkin said. “That’s a good story. This is a natural
progression in the way that businesses mature and an industry
matures.”

Programmers have been equally aggressive in buying
back shares. According to SNL Kagan, top programmers like
Time Warner Inc., The Walt Disney Co., News Corp., Viacom
and CBS spent an aggregate $3.4 billion to repurchase 107.7
million shares in the first quarter. That’s down from the $4.1
billion they spent on their stock in the fourth quarter, but up
from the $2.3 billion they spent in the first quarter of 2011.

Miller Tabak media analyst David Joyce said the pullback
is understandable for some companies.

Joyce said that in 2011, some federal economic-stimulus
benefi ts related to accelerated depreciation resulted
in less cash taxes, which helped boost free cash flow
for some cable companies. Free cash flow is one of the
main sources of cash for share-repurchase programs.
“Those stimulus benefits are reversing this year, so buybacks
should generally not be expected to increase in
pace,” Joyce said. “Some companies, like Time Warner
Inc., may buy back less.”

September