TWC Delivers Strong Q4


Time Warner Cable’s vow to return
profits to shareholders got another boost last
week, after the nation’s second-largest MSO
said it would increase its quarterly dividend
by 20%. The move comes after the cable operator
said it had committed more than $1 billion
to dividends and share buybacks in 2010.

The fourth quarter was another strong one
for TWC, with revenue up 5.9% to $4.8 billion
and adjusted operating income before depreciation
and amortization up 1.6% to $1.7 billion.

For the year, revenue increased 5.6% to $18.9
billion and AOIBDA was up 5.9%, to $6.9 billion.
Fueling that growth were typically strong showings
in high-speed data (customers up by 94,000
in the quarter and revenue rose 8.5%) and voice
(customers increased by 72,000 in the period
and revenue up 4.5%), as well as continued
strength in advertising and commercial sales.

Commercial revenue in the fourth quarter
rose 23%, to $299 million, and was up 21% for
the year, to $1.1 billion. Advertising revenue
soared 33% in the quarter, to $269 million, and
was up 25.5% for the year, to $881 million.

On a conference call with analysts to discuss
fourth-quarter results, TWC chief operating officer Rob Marcus said both the advertising and
commercial sectors are expected to continue
that pace for the foreseeable future.

While the basic-subscriber rolls continued
their downward trajectory — TWC lost 141,000
basic-video customers in the quarter and
454,000 for the year — it was the financial performance
that took center stage. Free cash flow
increased by 58% in the quarter, to $665 million,
and by 19.1% for the year, to $2.3 billion, all leading
to a beefier dividend in the first quarter (48
cents per share, or $1.92 annualized).

Marcus said the MSO
returned about $1.1 billion
to shareholders in
2010 ($576 million in
dividends and $515 million
in share repurchases).
That commitment to
returning capital continues
— TWC bought back
about $225 million of its
stock in January.

Marcus, who has taken
some heat for his candid
of sluggish subscriber
growth, was cautious
about the future, adding
that the effects of a sluggish housing market
and a weak economy continue to pressure
customer additions.

“We are seeing some modest improvement,
but we continue to feel the effects of a weak
housing market and high unemployment,”
Marcus said on the call. However, he pointed to
growth in primary-service units (a measure of
customer relationships) for the quarter and for
the year as a positive sign. TWC added 25,000
PSUs in the fourth quarter (compared to a loss
of 17,000 in the third quarter) and for the full
year added 344,000 PSUs.

Analysts for the most part were pleased
with the results. In a research note Thursday,
Sanford Bernstein cable and satellite analysts
Craig Moffett called the results solid, although
he joked the company’s consistency is becoming
a tad boring.

“Broadly speaking, they were better on revenues,
lower on margins, and in-line on profitability,”
Moffett wrote. “Subscriber metrics
were all broadly in line, and, perhaps most
importantly, capital spending continues to
plunge. In other words … Yawn.”

Morgan Stanley analyst Ben Swinburne
wrote that the results show TWC is focused on
driving revenue per customer instead of unit
growth. He added that the dividend increase
“helps confirm one of the best return-ofcapital
stories in the industry.”

Investors, however, appeared excited by the
results, driving Time Warner Cable shares as
high as $72.41 each (up $4.33 or 6.4%) on Jan.
27 before settling down to close at $69.24 each
(up $1.16 each or 1.2%).