Marketing

Roberts Is Not Eager to Take on Debt

6/01/2007 8:02 PM Eastern

Comcast chairman and CEO Brian Roberts maintained his enthusiasm for the triple play of video, voice and data services at an industry conference May 30, but appeared to downplay suggestions that the company increase leverage to substantially boost its ability to buy back its own stock.

Roberts, who in the past has called the triple play “the gift that keeps on giving,” said he saw no signs that growth in all three services will decline anytime soon. He said that with voice penetration at about 7% of households, Comcast is just beginning to see the growth in that part of the business.

“We haven’t peaked in any market yet, including the markets we have had for a couple of years,” Roberts said at the Sanford Bernstein Strategic Decisions Conference in New York last Wednesday. He pointed to the growth in high-speed Internet service, which continues to beat expectations despite being an eight-year-old product. And with the phone product still in its infancy, there is substantial room for growth.

Buying Back Stock the Roberts Way
It has been suggested by Sanford Bernstein analyst Craig Moffett that Comcast could use its substantial free cash flow to accelerate its share repurchases, a theory that Comcast chairman and CEO Brian Roberts has said is not a top priority. Below are Comcast’s annual share repurchases for the past four years and its accompanying free cash flow figures.
Shares Repurchased Value Free Cash Flow
2003 845,000 $14 million $74 million
2004 46.9 million $1.3 billion $1.9 billion
2005 79.1 million $2.3 billion $2 billion
2006 113 million $2.3 billion $2.6 billion
Source: Company reports.

NOT 'SLOWING DOWN’

“Having a conversation about slowing down is not a conversation that I think we should be having,” Roberts said.

Roberts was also enthusiastic about developments in technology, particularly in interactive television and targeted advertising. While targeted advertising has been on the cusp of a breakthrough for years, Roberts was encouraged by advertisers who have spent billions of dollars on Internet advertising, adding that it shows that they are willing to put their money in less traditional vehicles.

“I think it feels very real this time,” Roberts said, adding that interactive advertising will be a top priority for Comcast after its planned commercial telephone rollout next year. But, he said the success of interactive or targeted advertising will depend on cable operators banding together to agree on standards, something CableLabs already is working on.

“Right after we roll out commercial phone starting next year, this is a strategic imperative for the company, to try to really galvanize the cable industry,” Roberts said. “If we can make interactive television happen, nobody will be able to aggregate more eyeballs to do it than the cable industry and Comcast. It is a unique opportunity and one that we’re focused on.”

But Roberts appeared to downplay questions from moderator Sanford Bernstein analyst Craig Moffett concerning taking advantage of cheap debt and a cheap equity price to substantially increase its share buyback program. Earlier this month Moffett opined that the Roberts family could take Comcast private by increasing leverage from its current 2.5 times cash flow to 8.5 times cash flow. The Roberts, he contended, could use that money to purchase the remaining shares in the company the family does not own.

INVESTMENT PRIORITIES

While Comcast has used its free cash flow (cash flow after capital expenditures and interest payments are made) to buy back shares in the past, Roberts said that the company has two other priorities for those funds.

“Our first priority is to put it back into the business,” Roberts said. “Our second priority is if we can find new things to invest in, like CIM (Comcast Interactive Media, its technology investment vehicle) and the third has been to buy back stock.”

Roberts added that while Comcast’s debt to cash flow ratio is low at 2.5 times, it still carries a debt load of about $30 billion. And while interest rates are low and the market continues to encourage higher and higher levels of debt, that might not always be the case.

“The only tension is should we borrow ahead of that story and buy it now or wait and do it as you go,” Roberts said. “What we have said is when you have $30 billion of debt, it may seem underleveraged to you, but there have been times when Wall Street turns off the spigot on financing and turns the spigot on.”

While some companies have used share-buyback programs to show their bullish stance on the cable industry in general, Roberts said that Comcast has taken another tack — it’s been buying cable companies.

Since its 2002 purchase of AT&T Broadband for about $60 billion, Roberts said that Comcast has done about $15 billion worth of cable deals in the last few years, including its joint purchase of Adelphia Communications with Time Warner Inc. Comcast, he said, also has bought back about 12% of its stock in that period.

“We’ve taken $20 billion of debt to $30 billion in debt [in that time period],” Roberts said. “We’re conservative. That’s probably in some eyes of investors a fault.”