Cable Operators

Economy Clouds Cable's Quarter

7/25/2009 2:00 AM Eastern

With the cable financial-reporting season set to kick off with Time Warner Cable announcing second-quarter results July 29, some analysts are saying recession factors will make a normally slow quarter look even worse.

Compare that to the first quarter, in which the top publicly traded cable operators — Time Warner Cable, Comcast and Cablevision Systems — far outpaced analysts' estimates, aided partly by new subscribers drawn in by the transition to digital broadcast TV.

Even then, cable operators were warning the second quarter, normally slow as college students and snow birds disconnect service, would look more like the (down) fourth quarter of last year.

In the fourth quarter, the trio subtracted a total of 433,000 subscribers compared with subscriber levels three months earlier.

It also appears any continued upside benefit from the broadcasters' digital transition, completed on June 17, won't be felt until the third quarter.

Looking ahead, the subscriber forecast remains cloudy. Miller Tabak analyst David Joyce said 2009 should be an improvement over 2008, when the three MSOs lost a collective 723,000 basic subscribers. He sees annual subscriber losses for both Comcast and Time Warner Cable, though, and a flat finish for Cablevision.

Financially, Joyce foresees single-digit percentage growth in cash flow for Comcast and TWC. “I think 10%, 11%, even 12% EBITDA growth can be a potential again, starting next year,” he said, referring to earnings before income taxes, depreciation and amortization costs. “It doesn't take heroic revenue growth to get EBITDA to grow 10%.”

Joyce and other analysts have reduced their estimates for second-quarter basic subscribers, because of continued economic recession, setbacks in the housing market and the steady expansion of telephone-company video offerings.

Sanford Bernstein cable and satellite analyst Craig Moffett cited U.S. Census Bureau figures that occupied housing units fell by 486,000, to 111.4 million, in the first quarter, the largest such sequential decline since early 1994.

“The result is very likely a contraction in homes available for the pay-TV providers to serve,” Moffett wrote.

Moffett knocked down his second-quarter basic-subscriber estimates for the second time in two months. He now expects Comcast to shed about 208,000 basic customers (down from 108,000 previously) sequentially and Time Warner Cable to lose 105,000 basic customers (compared to his previous estimate of 23,000 losses).

Cablevision, less vulnerable to second quarter seasonality because of a strong presence in resort communities, is expected to have lost about 8,000 basic customers in the period, according to Moffett.

Joyce dropped his basic-subscriber estimates for Comcast to a second-quarter loss of 156,000, significantly worse than his previous target of 84,000 losses. He also upped subscriber-loss estimates for Time Warner Cable, to 81,000 from 6,000.

Wells Fargo cable and broadcast analyst Marci Ryvicker and Collins Stewart media analyst Tom Eagan see continued subscriber losses, too, with Ryvicker pegging Comcast to shed 225,000 basic customers, Time Warner to subtract 50,000 and even Cablevision to dip by 15,000.

Eagan expects Comcast to lose 165,000 basic customers, Time Warner 35,000 and Cablevision to gain 2,000 in the period.

Financial results are expected to be in line with consensus estimates. Revenue at Comcast is expected to climb 4% to around $8.8 billion and cash flow could rise about 4% to $3.5 billion, compared with the same period a year ago.

At Time Warner, the four analysts predict revenue will rise to around $4.4 billion (up 3%) and cash flow will increase 1% to around $1.6 billion.

At Cablevision, the belief is revenue will rise 2% to around $1.9 billion and operating cash flow will be up as much as 8% to around $650 million.

 

BASICALLY RECEDING
Basic cable subscriber losses are expected to continue in the second quarter, fueled by the recession, housing market setbacks and continued telco video expansion. Below are estimates for sequential second-quarter subscriber gains and (losses) by four leading analysts: Wells Fargo's Marci Ryvicker, Sanford Bernstein's Craig Moffett, Collins Stewart's Tom Eagan and Miller Tabak's David Joyce.

  Ryvicker Moffett Eagan Joyce
SOURCE: Analyst reports
Comcast (225,000) (208,000) (165,000) (156,000)
Time Warner Cable (50,000) (105,000) (35,000) (81,000)
Cablevision (15,000) (8,000) 2,000 (3,000)
October