Cox Continues to Surprise on Upsells

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Cox Communications Inc. continued to outperform expectations for sales of new services, which helped to push revenue and operating cash flow in the first quarter up 11 percent and 8 percent, respectively.

Cox reported revenue of $846.3 million, up from $765.6 million in the same period last year. Data revenue nearly tripled in the period to $30.2 million from $11.4 million, and telephony revenue more than doubled to $37.7 million from $16.2 million.

Total subscribers increased 2.1 percent during the period. Cox now has about 6.1 million subscribers.

Operating cash flow rose 8 percent to $325.5 million. Net income for the period was $1.1 billion, or $1.77 per share, up from $251.2 million (45 cents) a year ago. The profit was mainly due to a substantial gain on investments-$1.8 billion in the quarter, more than four times the $419 million gain in the same period last year.

Cox ended the quarter with more than 840,000 "revenue-generating units"-a way of counting how many services (among analog video, digital video, high-speed data and telephony) a subscriber buys, as opposed to how many cable subscribers are on board.

The RGU count rose from 657,000 in the fourth quarter and from 298,000 in the first quarter of last year.

Cox had 447,000 digital subscribers in the period, up from 351,000 in the fourth quarter. High-speed-data subscribers rose to 260,000 in the first quarter from 204,000 in the December quarter. Telephony customers rose by more than 30,000 in the period, ending the quarter at 134,330.

Cox executive vice president of finance and administration and chief financial officer Jimmy Hayes said in a conference call with analysts that Cox is installing roughly 15,000 new-service customers per week-7,500 digital, 5,000 high-speed data and 2,800 telephony. He added that Cox was on track to finish the year with about 1.3 million new-service subscribers.

"We're very pleased with the first-quarter results," Hayes said during the call. "They are consistent with our business plan. We came out of the gate with our plan ahead of budget."

Part of the reason for the acceleration of new-service deployment is Cox's aggressive upgrade schedule. In the first quarter, about 60 percent of Cox's plant was at 750 megahertz and 15 percent was at 550 MHz. By the end of the year, Cox plans to have 70 percent of its plant at 750 MHz and 11 percent at 550 MHz.

Goldman, Sachs & Co. analyst Barry Kaplan was impressed with Cox's numbers. In a research note on the company, he upped most of his estimates for new-service

deployment. And he added that Cox's success with digital cable, high-speed data and telephony justifies its slightly higher premium compared with other cable stocks.

"Although Cox has participated in both the cable sector and general market downturn, it still trades at a material premium to the group at 15.7 [times cash flow], versus the group average of 13 [times cash flow]," Kaplan wrote in his report. "However, given the company's continued impressive performance, especially in new services, we believe the stock deserves its premium."

CBS, VIACOM SELL ADS

While new services drove Cox's growth for the quarter, CBS Corp. and Viacom Inc. fueled growth at their respective businesses the old-fashioned way-through advertising.

At Viacom, cash flow increased 2 percent on revenue of $3.03 billion. Net earnings were up 69 percent to $76 million, or 11 cents per share.

Cable networks MTV: Music Television, VH1 and Nickelodeon fueled that growth, with MTV turning in its fifth consecutive quarter of 20 percent advertising-sales growth. MTV's revenue for the quarter was up 17 percent and cash flow increased 29 percent. As a whole, the network segment upped revenue by 14 percent and cash flow

by 28 percent. Operating income at the networks rose 32 percent to $228.1 million.

"This is a watershed year for Viacom as we very shortly complete our merger with CBS," chairman Sumner Redstone said in a conference call with analysts. He added that the substantial growth in advertising revenue at its television networks will complement the strong advertising growth at CBS.

"Obviously, both [CBS and Viacom] are shooting for the giant advertisers, and we both have them," Redstone said. "But don't think they are going to be spending less now that we're together. They're going to be spending more. We're complementary, not competitive with each other."

CBS' revenue rose 36 percent and cash flow increased 85 percent for the period. The company reported a $40 million net loss in the quarter, primarily reflecting noncash after-tax losses of $75 million associated with equity investments in Internet-based companies.

Excluding these noncash Internet losses, the company would have reported income from continuing operations of $35 million, or 40 percent higher than 1999's first quarter.

At CBS' cable operations, revenue increased 6.2 percent to $138 million and cash flow rose 6 percent to $53 million.

CBS president and CEO Mel Karmazin said in a conference call with analysts that he expects the pending merger with Viacom to receive federal approval soon. He added that the merger could be completed within days of receiving the federal go-ahead.

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