Time Warner Cable officially kicked off the cable earnings season last week, reporting larger than expected basic customer losses but more than making up for those with 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 Cable lost about 105,000 basic subscribers in the fourth quarter, exceeding analysts' predictions of losses of between 30,000 and 80,000 customers. That sluggishness — TWC lost about 210,000 basic customers for the year — was overshadowed by the cable company's announcement that it would issue a 40-cent-per-share quarterly dividend beginning in March. The payout, which amounts to $1.60 per share annually, represents a 3.7% yield and 29.6% of TWC's annual free cash flow. Even at that level — most analysts were expecting a yield of 2% to 4% — TWC said the dividend has ample room to grow.
The dividend, plus steady revenue and cash flow growth of about 3% each for the quarter, helped fuel a big jump in the stock price. TWC shares were up as much as 6% ($2.62) to $46.24 on Jan. 28, before settling down to close at $44.09, up 47 cents (1%).
“Today's results are precisely what the doctor ordered,” Sanford Bernstein cable and satellite analyst Craig Moffett wrote in a research note. “We continue to view Time Warner Cable as the single most attractive name in our coverage universe… and by a wide margin.”
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 about what kind of acquisitions might be on TWC's radar. It is believed that Charter Communications, which recently emerged from bankruptcy protection, could be 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.
Britt also commented on TWC's “Roll Over or Get Tough” campaign, which was launched leading up to its highly publicized, and since settled, carriage battle with Fox Broadcasting.
While Britt wouldn't give specifics on programming deals, he said the campaign served its purpose of educating consumers. 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 a la 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,” Britt added.
TWC chief operating officer Landel Hobbs said that TWC will redouble its efforts on video in 2010, realigning digital channel lineups in a number of cities around specific 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, up from an average of 87 HD channels today.
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, which allows viewers to watch selected programs up 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.