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TWC Stock Tumbles After Q4 Report

TWC Stock Tumbles After Q4 Report 2/03/2013 7:00 PM Eastern

Time Warner Cable kicked off the cable earnings season with mixed results last week as financial metrics met or exceeded expectations but weakness in high-speed Internet growth — partially impacted by a new modem charge — sent some investors for the exits.

Time Warner cable stock was down as much as 12% ($12.41) last Thursday after it reported a loss of 126,000 basic-video customers, about even with the same period in the prior year, and lackluster high-speed data additions of 75,000 for the period. Analysts were expecting about 110,000 broadband adds.

The stock traded as low as $88.29 on Jan. 31 and closed at $89.32, down 11.3%. As of 1:15 p.m. last Friday (Feb. 1), shares were down $1.04 each to $88.30.

Pivotal Research Group principal and senior media & communications analyst Jeff Wlodarczak saw two reasons for the stock decline. Investors, he said, were expecting TWC to guide toward a large cash-flow increase in 2013 on the heels of the modem charges, but the MSO instead said it expects EBITDA growth to decelerate. Also, there’s a concern the company will ease up on stock buybacks this year.

TWC chief financial officer Irene Esteves told analysts on the earnings call that total revenue should rise 4% to 5% in 2013, but OIBDA growth would contract by between 50 and 100 basis points, mainly because of an expected 10% rise in per-subscriber programming costs.

Chief operating officer Rob Marcus cited the new $3-per-month modem fee for customers. “The shortfall here was a conscious trade,” he said. “Our modem fee drove a 6.3% increase in residential HSD ARPU in the fourth quarter, but undoubtedly had the effect of elevating disconnects.”

Despite the slowdown, TWC still outpaced Verizon and AT&T U-verse broadband additions combined, Marcus said.

Revenue and cash flow growth, at 4.2% and 5.6%, in the quarter were in line with most analysts’ forecasts.

Marcus said he was more disappointed about the basic video losses. He said the company had hoped 2012 would be the year it dramatically improved losses. While that didn’t happen, Marcus was encouraged by improvements in video losses over the past three quarters, and vowed that 2013 would show even better performance.

Along those lines Time Warner Cable is stepping up customer retention efforts, boosting its customer service performance and beefing up its online apps so customers will gain access to more content on more devices.

September