Basic Momentum Continues at Comcast

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Comcast continued to whittle away at basic subscriber losses in the second quarter, reporting another period of improved results while driving revenue and operating cash flow growth in line with analysts' expectations.
Comcast Cable Communications president Neil Smit declared war on basic video losses in the first quarter, when the nation's largest cable operator reported fewer losses than the year before (39,000 vs. 82,000 in 2010). The Philadelphia-based MSO appears to be winning the battle, reporting a loss of 238,000 basic video customers in the period, down from a loss of 265,000 video customers in the prior year. The results were shy of analysts' consensus estimates, which predicted losses would be around 173,000 during the seasonally weak period when customers traditionally disconnect service as they move to summer residences.
In a conference call with analysts, Comcast Cable president Neil Smit said the subscriber performance was driven mainly by improvements in customer retention, which has been aided by gains in customer service. Smit added that repeat service calls improved by 15% in the period and repair phone calls were better by 9%. The goal is to reduce service related truck rolls by 2 million and service related phone calls by 10 million by the end of the year compared to 2009, he said.
"That equates to real savings. That's taking unnecessary noise out of the system," Smit said on the call..
In a research report, Sanford Bernstein cable and satellite analyst Craig Moffett wrote that while Comcast's basic subscriber results were a bit lighter than expectations, "they were nevertheless better than a year ago."
Moffett added that Comcast's subscriber results were better than Time Warner Cable, which reported second quarter results July 28 and lost 128,000 basic customers in the period, more than the 111,000 it shed in the prior year.
"Comcast's results won't end the bull/bear debate, but against these unmistakably lowered expectations, they are likely more than enough for a sigh of relief," Moffett wrote.
High-speed Internet growth continued to improve during the period - Comcast added 144,000 HSI customers in the period compared to 118,000 in the same period last year. But voice customer growth continued to lag - the MSO added 193,000 telephone customers in the quarter vs. 230,000 last year.
The HSI gains, coupled with a strong showing in commercial services - where revenue increased 41.7% in the period - helped drive cable systems revenue up 5.6% to $9.3 billion and operating cash flow up 6.8% to $3.9 billion in the period.
Overall, consolidated pro forma revenue was up 9.4% to $14.3 billion and operating cash flow rise 6.7% to $4.8 billion driven by the cable results and strong performance at its NBC Universal joint venture. At the NBC Universal joint venture, cable networks revenue rose 12.6% to $2.2 billion, driven by higher distribution fees, higher advertising revenue and a 44% rise in other revenue tied to licensing of owned content from its cable production studio. Operating cash flow growth was lighter at 1.1% (to $846 million in the quarter) reflecting the higher revenue and offset by an increased investment in original programming, higher marketing expenses and acquisition related accounting revisions. Excluding the accounting revisions, OCF would have risen 6.8% in the period.
The broadcast unit had an even stronger showing in the period, with revenue up 18.5% to $1.7 billion and an 8.8% rise in operating cash flow to $190 million. The increases reflected higher advertising revenue from improved pricing and ratings as well as higher content licensing revenue.
On the call NBCU CEO Steve Burke called 2011 and 2010 transition and investment years for the programming unit, pointing to increased spending on shows like The Voice, which helped push the NBC broadcast network into the top primetime ratings spot during the last four weeks of the second quarter. And though the outlook for broadcast TV is "much rosier" than it was 18 months ago, Burke cautioned that there is still a long row to hoe.
"We're in fourth place at NBC," Burke said of its standing with the three other major broadcast networks. "We've got a lot of investments and we've told people that it [a turnaround] doesn't happen in one year; it probably won't even happen in two years; might take three or four. I am very confident we will get there but we need to invest and along the way I wouldn't expect any miracles financially and in terms of performance."

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