Cox Starts Year with a Cautious Tone2/11/2001 7:00 PM Eastern
Cox Communications Inc. executives sounded a note of caution last week, saying the company's first-quarter outlook calls for slower growth than analysts had expected.
In a conference call, Cox chief financial officer Jimmy Hayes told analysts that first-quarter cash-flow growth would be in the range of 9
percent to 11 percent, while revenue will rise between 14 percent and 16 percent.
Analysts had penciled in cash-flow growth estimates of 10 percent to 12 percent for the quarter.
Overall, Cox executives predicted cash-flow growth of about 10 percent to 12 percent in 2001, up from 10 percent last year. Revenue should rise by 14 percent to 16 percent, compared with a 12-percent jump in 2000.
Investors appeared not to like the cautionary tone, driving the price of Cox stock shares down last Tuesday by $1.10, to $44.94.
Cox has basically shied away from aggressive targets, given what happened last year, said SG Cowen Securities Corp. analyst Gary Farber.
Cox had provided an aggressive growth forecast for the second quarter of 2000. But the actual results-which showed cash flow up only 7 percent-fell short of even the standard double- digit growth benchmark. Coupled with fears of increased competition in its Phoenix market, the results sent Cox's stock into a tailspin.
"They're definitely not looking to repeat that event," Farber said.
"If you look at what they're saying-14- to 16-percent revenue growth, 1.5-percent subscriber growth and 4- percent rate increases-it looks to be that there is a missing element in their guidance," he said. "The missing element is probably that the guidance they've given is doable, but what's achievable is greater."
In the fourth-quarter report last week, Cox posted revenue growth of 13 percent, to $945.9 million. Operating cash flow rose 14 percent, to $386.5 million.
The company added 281,000 new revenue-generating units in the period, ending the year with 1.6 million RGUs-an increase of 910,000 from year-end 1999.
Cox added about 12,000 digital-cable subscribers, 6,400 high-speed data customers and 3,000 telephony subscribers per week during the fourth quarter.
Bundled services also grew during the period. Cox said penetration rates for the bundle-in which customers take at least two new services-doubled during the period, to 12 percent from 6 percent.
In areas in which the company offers telephony service, penetration rates rose to 18 percent from 9 percent.
Those market shares are expected to grow in 2001, as the percentage of digital- and data-ready Cox markets rises to 80 percent by year-end.
Hayes said Cox plans to aggressively market bundled services in its markets throughout 2001.
But the new-services offering that won't get a big push outside its existing markets is one that many cable operators had expected to be a major driver for growth in 2001: video-on-demand.
Although Cox president Jim Robbins said he expects to see strong growth in data and telephony services-despite a slowing economy-he has concerns about such video products as VOD and digital cable.
"If I worry a little bit, I worry maybe about some of the add-on video products, where people who are facing higher fuel bills may be a little cautious," Robbins said. "But I'm not worried about data or telephony."
Cox also suggested it would limit its VOD rollouts this year to three communities-San Diego, Phoenix and an unnamed city.
The San Diego launch, which is Cox's first commercial rollout, currently involves about 2,000 subscribers, said senior vice president of technology development Chris Bowick. In Phoenix, the company is conducting a trial with several Cox employees.
"We want to walk before we can run with this service," Bowick said. "Don't anticipate rolling out any more than that, at least in this calendar year at this time."
Farber said he wasn't overly concerned with any plans to hold back on VOD.
"It's [economic] uncertainty," Farber said. "I think that was the theme of their budgeting process: Let's put on the table what's doable, let's factor in the economy and then let's go ahead and do what we've always done, which is execute."