TWC Stock Soars on Buyback News

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Time Warner Cable stock soared nearly 5% ($2.94 per share) to $62.60 each in early trading Thursday, after the No. 2 MSO said it would launch a $4 billion share repurchase program, offsetting a downturn in primary service units, a measure of total customer relationships.
Time Warner Cable warned back in September that it would likely move into negative PSU territory in the third quarter and results proved them right. The MSO lost about 17,000 PSUs in the third quarter, the first time that metric has crossed into the red for the cable company. That was fueled by continued basic video subscriber losses (about 155,000 in the period) and slower growth in high-speed data (104,000 vs. 121,000 last year) and phone (34,000 vs. 72,000 last year). However, it didn't seem to impact financial results.
Revenue rose 5.2% to $4.7 billion and adjusted earnings before interest, taxes, depreciation and amortization was up 5.7% to $1.7 billion, in line with analysts' estimates.
On a conference call with analysts, Time Warner Cable chairman and CEO Glenn Britt said the sluggish subscriber growth was mainly due to the economy. And in that vein, the company said that it is poised to offer a lower-cost video package to customers.
Britt wouldn't say when, where or at what price that package would be introduced. And though he said there has been some resistance from programmers, the MSO has managed to make smaller packages a reality.
"There is certainly a segment of our economy and our population that is under economic duress," Britt said on the call. "We think it's important for this broader industry, meaning programmers and distributors, to be responsible for that. We have sought in our programming negotiations to get more flexibility around that. Going the other way, [in the] programming business, costs seem to be somewhat fixed, so if they are facing smaller audiences, that tends to be a problem for them. It is natural for those companies to resist. There's a balance in this. We have negotiated some additional flexibility beyond what we had a few years ago that will allow us to begin to offer some smaller packages at lower prices. Probably not all the way where we'd like to be, but we're moving in the right direction."
On the buyback front, TWC chief financial officer Rob Marcus said that there is no set time frame for the stock purchases - they will be made according to market conditions. But the amount of the buyback could potentially allow TWC to repurchase as much as 20% of its total market capitalization at current prices.
Investors were anticipating a share repurchase announcement with third quarter results, but the actual number appeared to far outpace expectations.
Collins Stewart media analyst Tom Eagan summed up the surprise in the size of the buyout in the title of a research report he issued on the company Thursday morning: "$4 billion. Wow."

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