Guidance Revision Drops Charter Stock

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New Charter Communications Inc. CEO Carl Vogel got a crash course in market volatility Thursday, when he watched the MSO's stock plunge after it revised its year-end guidance on financial results.

Vogel — who recently replaced resigned CEO Jerald Kent — spent the bulk of his first formal conference call last week explaining the revision to analysts, and trying to convince them that Charter remains in a strong position.

Charter said full-year 2001 operating cash flow would grow 10 percent to 11 percent over 2000, instead of the previously expected 12 to 14 percent. Revenue growth was revised downward, to 12.5 percent to 13.5 percent from 14 percent to 16 percent.

In response, Charter's stock price fell $1.64, or 11.6 percent, to close at $12.50 last Thursday.

COO Dave Barford said Charter had eliminated deep discounts for digital customers, and projected lower ad sales.

Basic-subscriber additions took a hit. Basic growth was 1.1 percent in the quarter, down from more than 2 percent in previous periods. In the second quarter, Charter said it would forego a 2-percent basic growth rate in favor of growing higher-margin digital and data subscribers.

"Rebalancing to data and digital sales was the right decision," Barford said during the call. "But it put pressure on our analog revenue."

Overall, Charter had a pretty good third quarter. Revenue rose 13 percent, to $1.04 billion, and operating cash flow was up 10.3 percent, to $467.5 million. Gains were fueled by strong growth in high-speed data and digital cable subscribers.

In the period, digital customers rose by 252,000, while high-speed data was up by 100,000 subscribers — Charter's largest growth in quarterly high-speed subscribership ever.

Charter ended the period with 1.95 million digital customers and restated a target of 2.15 million digital subscribers by year-end. The company ended the quarter with 595,400 high-speed data customers, on track toward 630,000.

In a research note, UBS Warburg LLC cable analyst Tom Eagan said the lowered guidance was predictable and called the stock downturn an overreaction.

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