It could be another tough day for cable operator stocks following a third-quarter earnings report by Cablevision Systems that was in some ways disappointing to Wall Street.
Cable stocks missed yesterday’s 300-point rally after Time Warner Cable similarly disappointed with its earnings report Thursday. And Cablevision shares are down more than 15% in morning trading.
Cablevision said that third quarter consolidated net revenues grew 8.0% to $1.666 billion, consolidated adjusted operating cash flow was flat at $539.3 million, and that consolidated operating income decreased 11.7% to $272.4 million.
Those figures were impacted by the acquisition of the Bresnan cable properties at the end of last year and $16 million in costs resulting from the impact when Hurricane Irene hit the New York metro area. Excluding both items, net revenue would have been up 0.4%, while cash flow would have dropped 4.1% and operating income would have fallen 4%. The company said it had higher programming and marketing costs in the quarter. (For more on Cablevision’s earnings, click here.)
Analysts had been expecting some results to be better. David Joyce of Miller Tabak + Co. said Cablevision’s revenue and net income missed estimates. The operator also lost video customers in the quarter, though not as many as expected. High-speed Internet and phone adds exceeded forecasts, partly because Verizon workers were on strike during the period.
“Cablevision Systems shares may come under some pressure from this miss despite expectations having declining recently, but we believe the shares are fundamentally inexpensive and have significant long-term upside from high-speed data, Lightpath, and interactive advertising growth,” Joyce said in a research note. “The expense side of the equation was more of the concern this quarter than revenue, but 4Q11 telco promotional activity may continue to cause some headwinds.”
On the company’s earnings call with analysts, CEO James Dolan conceded that “not all results are where we want them.” He added that Cablevision had long been a standard setter among cable operators for penetration and financial performance and that it would be tough to continue to get over that high bar in an environment with weaker household formation and more competition from Verizon. “We are addressing the challenge,” he said.
“Cablevision’s third quarter earnings are a mixed bag, and won’t do much to settle the bull-bear debate, either for Cablevision itself or for the cable industry,” said Craig Moffett, analyst at Sanford C. Bernstein & Co. “The earnings miss is a big and ugly one, and while the subscriber metrics are generally an across-the-board beat, the asterisks — a Verizon strike and a huge hurricane — are, in this case, too large to allow a clear read.”
Moffett said the key issue for the cable business was growth. Without the Bresnan acquisition, he said, Cablevision’s growth was just 0.4%.
“The importance of the Verizon strike and hurricane can’t be overstated,” he added. “Verizon spent much of the third quarter with one hand tied behind its back. A six week strike all but halted FiOS and DSL installations, and Hurricane Irene pulled away installers again almost as soon as the strike ended.”
For broadband, which Moffett says is “increasingly the cornerstone service for all cable operators,” growth was strong, helped by the Verizon strike. But he questioned whether even growth in broadband was repeatable. “Unfortunately, we suspect not,” he said.
In trading on Friday morning, Cablevision shares were down 15.48%, Comcast was down 2.8% and Time Warner Cable was down 2.9%.