Cablevision Misses Some Marks in Third Quarter

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Fears that Cablevision Systems’ best days
may be behind it were bolstered last week after lackluster
third-quarter results beat analysts’ predictions on several
subscriber metrics but missed widely on cash flow.

Cablevision continued to outperform expectations on
subscriber metrics. It lost 19,000 basic-video subscribers
in the quarter, beating consensus predictions that it would
lose 30,000 customers. High-speed-data growth of 17,000
and phone customer growth of 38,000 outpaced consensus
estimates of 5,000 (data) and 19,000 (phone), respectively.

Financial metrics were another story. Cablevision reported
revenue of $1.67 billion, up 8% and in line with consensus
estimates of $1.69 billion. But it missed widely on
adjusted operating cash-flow growth. AOCF for the quarter
was flat at $539 million, well below consensus predictions
of $601 million.

The result was a precipitous drop in Cablevision’s stock
price, a day after sluggish results from Time Warner Cable
put further pressure on the sector.

Cablevision’s share price neared a
52-week low of $14.45 on Oct. 28, dipping
as low as $14.50 before finishing
the day at $15.14, down 12.5% ($2.17).

Before the market opened, Sanford
Bernstein cable and satellite analyst
Craig Moffett observed that Cablevision
may be becoming a “victim of its
own success.”

Despite fierce competition, especially
from Verizon Communications’
FiOS TV, Cablevision has led
the industry in basic-video penetration
(59%), high-speed-data penetration
(53%), phone penetration (54%)
and free cash flow yield (19%). The idea
that it may have hit a wall is not entirely
without merit.

On the earnings call with analysts Friday, Cablevision
CEO James Dolan tried to put
the company’s performance in perspective.

“Not all of our results in the quarter
are where we want them,” Dolan
said, adding that over the years Cablevision
has led its peers in practically
every financial and operating
metric. “Continuing to build upon
this historical performance has become
more challenging in a highly
competitive environment, which
is compounded by economic pressures,
including a significant decline
in housing activity.”

Ample growth is ahead, the CEO
said: “Historically, Cablevision has
confronted challenges in the constantly
evolving business over multiple
business cycles. We are highly
confident that the same spirit of service,
innovation and execution will
guide us as we move forward.”

Chief operating officer Tom Rutledge
said results were hurt by a retransmission-
consent fight last year
with Fox, which led Cablevision to
raise its rates less than it had originally
planned, a decline in occupied
households, sluggish home growth,
and higher programming and marketing

Retransmission-consent costs
probably played the biggest role in
higher programming expenses, Rutledge
said. “I think the overall rate of
programming going forward will moderate to some extent
naturally,” he said. “Right now, we’re absorbing the collapse
of the broadcast model.”

Cablevision still sees demand for advanced services, he said.
The triple-play sell-in rate is about 74%, with half of those customers
taking the Ultimate Triple Play package of 50 Megabits-
per-second high-speed Internet service, voice and video.

“There are definitely cyclical pressures on the business,
but over the long term, I think the business still has
a lot of growth in it,” Rutledge said. “There’s continuing
opportunity to sell the triple-play package to residential
customers. There’s still a considerable amount of satellite
penetration in our footprint, [which] ultimately gives us
a path to additional residential growth, [and] the opportunity
for continued penetration of telecommunications
services for the business environment continues. … It is a
cyclically challenging time, but the ultimate drivers are
still in the business.”