Time Warner Cable shares soared more than 6% ($2.62 per share) in early trading Thursday, on the heels of strong fourth-quarter results, a larger than expected dividend and the hope that the cable giant could be on the hunt for cable systems.
Time Warner said Thursday that it would issue an annual dividend of $1.60 per share (40 cents per share per quarter), equal to about a 3.7% yield. Analysts had expected the dividend yield to be in the 2% to 4% range. Revenue and operating income before depreciation and amortization were up 3% each in the period, to $4.5 billion and $1.7 billion, respectively.
Time Warner Cable stock was trading as high as $46.24 each in early trading Thursday, up $2.62 per share or 6%. The stock settled back later in the day, trading at $44.53 (up 91 cents each) at 11:42 a.m.
TWC chairman and CEO Glenn Britt said that in setting the dividend, the MSO spoke to investors who said they wanted a meaningful payout that also allowed the company to reinvest in the business.
"The dividend provides a significant yield, yet it also provides us the flexibility to invest in organic growth as well as to consider strategic acquisitions as an additional means of returning capital to shareholders over time," Britt said on a conference call with analysts.
Britt backed off when pressed what kind of acquisitions might be on TWC's radar. It is believed that Charter Communications, which recently emerged from bankruptcy protection, could be more interested in system swaps or sales. TWC, which has several large clusters near Charter systems, could be a potential partner.
Britt wouldn't comment on Charter specifically, but added that TWC would look at whatever opportunities become available.
"We will consider looking at acquisitions in our space, and we're going to do it in a disciplined way," Britt said. "We're here to earn returns for our shareholders. If there are things that we think we can bring value to, where we can make money for our shareholders we will pursue that, but we don't feel we have to acquire things just to do it."
Britt also commented on TWC's "Roll Over or Get Tough" campaign, campaign, which was launched leading up to its highly publicized and since settled carriage battle with Fox Broadcasting. More recently, TWC said it struck new carriage deals with Scripps Networks Interactive for its Food Network and Great American Country channels.
While Britt wouldn't give specifics on programming deals, he said the campaign served its dual purpose of educating consumers and getting feedback from customers. He added that one result of the campaign could be smaller programming packages for customers.
"We heard consumers' frustrations about the size of the packages and perhaps a desire for more choice," Britt said, adding that full ala carte is still impractical. "But I think if this industry and the programmers could work toward an environment where we offered more variety of packages, some of which might be slightly smaller, I think that would be consumer friendly and I think we would be in better shape as an industry, including programmers."
Chief financial officer Rob Marcus said that TWC expects programming costs to be slightly higher in 2010, but that the recent deals have been "baked in" to those estimates.
Marcus also addressed concerns that Apple Computer, creator of I-Tunes, the I-Pod and now the I-Pad, would undermine multichannel distributors in its attempts to secure video programming. Marcus said that TWC's deals provide protections.
"It varies from programmer to programmer," Marcus said. "We are always very focused on trying to maximize the value to our customers of what it is that we're paying fees for. That includes imposing limitations on programmers' ability to exploit the content in ways that undercut that business model."
TWC chief operating officer Landel Hobbs said that in 2010, TWC will redouble its efforts on video, realigning digital channel lineups in a number of cities around like genres. He added that through its switched digital and all-digital initiatives, TWC hopes to make between 150 and 200 HD channels available to most of its markets by the end of this year.
And with the success of its Start Over expansion - that service is now broadly available - Hobbs said that TWC will shift its sights toward growing its Look Back products, extending the window programs can be viewed to 72 hours after they are first aired. He added that TWC has Look Back rights to 87 networks and will launch the product in additional cities this year.