Cable Operators Post Strong 2Q Growth


The remaining publicly traded cable operators proved that the strong second-quarter results reported by Comcast and Cablevision Systems late last month were no fluke, with Time Warner Cable, Charter Communications and Mediacom Communications all posting robust growth in the period.

At Time Warner Cable, revenue was up 7% to $4.3 billion and adjusted operating income before depreciation and amortization (AOIBDA rose 9% to $1.6 billion. But the real story was the strong subscriber metrics the second-largest U.S. cable operator reported during what is typically a seasonally weak period.

TWC beat practically every analyst’s estimate for the period beginning with basic subscribers, where it lost about 9,000 customers, besting some estimates that it would lose as many as 45,000 basic customers. TWC also added 200,000 digital-cable customers (compared to 184,000 in second-quarter 2007), 201,000 high-speed data customers and 251,000 telephone customers.

Sanford Bernstein cable and satellite analyst Craig Moffett said in a research note the quarter’s highlight was strength in broadband additions, particularly in light of weakness in that product line for its telco competitors Verizon Communications and AT&T.

Moffett was also impressed by continued strong results on the telephony front.

“There is no sign of a voice-market slowdown in TWC numbers,” Moffett wrote, adding that the 258,000 net additions reflect “the gathering momentum in their acquired Adelphia [Communications] properties.”

But despite the strong results, TWC shares were hammered on Wednesday, dipping as low as $27.86 (down $2.04 or 6.8%), before closing at $28.34 (down 5.2% or $1.56). The decline could be a reaction to the 4.9% ($1.40) gain in the stock price Aug. 5, competitive concerns as Verizon launches FiOS TV service in Manhattan and the company’s decision to reduce its year-end earnings guidance.

TWC reaffirmed revenue and free-cash-flow guidance for the year — 9% and 40% growth, respectively — but lowered earnings estimates from $1.25 to $1.30 per share to between $1.10 and $1.15 per share due to costs associated with its planned separation from Time Warner Inc.

At Charter Communications, basic subscribers dipped by 44,800 customers in the seasonally weak period. But those losses were overshadowed by strong increases in high-speed Internet subscribers (up by 19,300 customers); the addition of 90,500 telephony customers (up 70% from last year); and the addition of 33,900 digital cable customers.

Revenue rose 8.9% to $1.623 billion and adjusted operating cash flow increased 10.1% to $591 million, its seventh consecutive quarter of double-digit cash flow growth.

Charter also reported a strong gain in average revenue per customer (up 12% to $104.35), which appeared to show that the St. Louis-based cable operator is successfully selling the bundle.

“Our solid financial performance in the second quarter is a result of our consistent strategies to increase bundled penetration, enhance products and services and improve the customer experience,” CEO Neil Smit said in a statement. “Our priorities are to deliver healthy financial growth, leverage infrastructure investments and capture new growth opportunities.”

At Mediacom Communications, results were equally strong — revenue was up 7.6% to $349.5 million and operating cash flow increased 9.1% to $130.1 million. While Mediacom lost about 5,000 basic video customers in the period (about in line with analysts estimates) the operator soundly beat predictions for revenue generating unit growth with 42,000 additions in the quarter. Some analysts had estimated RGU growth of about 27,000 for the period.

Fueling that growth were strong gains in digital video subscribers (at 15,000 it was more than double estimates of 6,000 additions) and telephone customers (at 18,000 additions it was strongly above estimates of 13,000 adds). Mediacom also added 14,000 high-speed Internet customers, slightly above estimates of 13,000 additions for the quarter.

Mediacom chairman and CEO Rocco Commisso called the RGU growth a record for any second quarter in company history and said basic subscriber losses were the lowest of any comparable period since 2001. As a result, Mediacom ticked up its year-end financial guidance for the second time this year.

Mediacom now expects revenue to grow between 7% and 8% for the year instead of previous estimates of 6.5% to 7.5% growth. AOIBDA is also expected to grow between 8.5% and 9.5% for the year, instead of previous estimates of 7% to 8% growth.