Comcast Reports Strong Q1 Cash Flow

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Comcast Corp. kept the momentum going after the strong first-quarter results from No. 2 cable operator Time Warner Cable yesterday, improving subscriber losses and nearly doubling its free cash flow.
Comcast said it lost 78,000 subscribers in the period - slightly worse than the 57,000 lost in the first quarter of 2008 but better than analyst consensus estimates of a 171,000 subscriber loss. Revenue rose 5.3% to $8.8 billion at the nation's largest cable operator and operating cash flow rose 8% to $3.4 billion.
The company added 288,000 digital-cable customers (down from 494,000 in 2008); 329,000 high-speed data customers (down from 492,000); and 298,000 phone customers (down from 639,000).
On a conference call with analysts, chief operating officer Steve Burke said that the digital transition helped ease basic-subscriber losses for the quarter, but unlike Time Warner Cable, did not quantify how many subscribers signed on as a direct result. In its conference call with analysts Wednesday, TWC said about 80,000 customers signed on because of the digital transition.
"Clearly it had an impact and we expect it to have an impact in the second quarter," Burke said.
However, like TWC which said that subscriber growth was strongest during the first few months of the quarter, Comcast said that the past two months have been slower.
"March and April were tougher than January and February," Burke said.
But the real story, according to some analysts, was free cash flow, which grew 95% in the period to $1.4 billion from $702 million in the prior year.
In a research report, Sanford Bernstein cable and satellite analyst Craig Moffett said Comcast's financial growth numbers "ranged from strong to spectacular," in the period.
On Wednesday, Time Warner Cable outpaced analysts' expectations on practically every metric, ending the quarter with a gain of 36,000 subscribers and touching off a rally in cable stocks. That rally continued in early trading Thursday, as Comcast stock rose 5.4% (82 cents each) to $16.06 per share.
In his report, Moffett wondered what the company will do with all of its cash and that was partly answered during the conference call with analysts: pay down debt, accelerate its all-digital initiative and possibly buy back more of its stock.
Burke gave analysts an update on the all-digital initiative, which he said covers about 5% of Comcast's footprint so far. That will grow to more than 50% of the footprint by the end of the year, he said. The project, which will be completed by 2010, will cost about $1 billion, Burke said, adding that the idea is to have only lifeline channels in analog. Burke said that of Comcast's customer base, about 14% are lifeline only and will see no change during the all-digital conversion. For the 72% that have digital, only additional TV's without set-tops will be affected and Burke estimated Comcast would need to rollout about 20 million boxes. For analog basic subscribers, Comcast will provide a set-top box and two digital adapters. He estimated that the company would need to provide about 10 million adapters and two million to three million set-tops to theta segment.
Burke said key to the rollout is the availability of a low-cost digital adapter - Comcast currently uses a $30 adapter, representing about one-third of the price of a digital set-top.

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