Comcast Earnings Solid Despite Decline in Cable-TV Subscribers

Net Income Up 10%; Basic Customers Down 57,000
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Comcast reported mostly improved first-quarter earnings Thursday, although it experienced a net loss of 57,000 video subscribers, indicating that Time Warner Cable’s surprise subscriber gain reported Wednesday is not shaping up as a cable-sector trend.

Excluding one-time items, Comcast reported a 10% rise in net income to $588 million and 19 cents per share for the quarter ended March 31, in line with analysts’ forecasts, versus $537 million (17 cents) a year earlier. Looking at the bottom line, net earnings fell 13% to $732 million, or 24 cents per share, from $837 million (26 cents) a year ago, when including one-time gains a year ago that skewed comparisons. In an indicator of core profitability, pro forma consolidated cash flow climbed 12% to $3.2 billion.

Revenue at the nation’s largest cable-system operator climbed a healthy 14% to $8.39 billion surpassing the $8.17 billion forecast of analysts. While rivals such as telephone companies poached cable subscribers, monthly subscriber bills escalated from new and expanded services such as customers adding digital-video recorders, which offset headcount losses.

In a conference call with investors, Comcast said average revenue per basic subscriber hit $107 per month in the quarter, up from $96 one year earlier and $87 two years ago, indicating the impact of customers buying multiple services.

With the net loss of 57,000 basic-cable subscribers (a 0.2% decline), Comcast had 24.69 million total cable subscribers at the end of the quarter. A year ago, Comcast registered an 83,000 net gain in cable subscribers.

In the first quarter, Comcast customers averaged $63.46 per month for cable TV, up 5.8% from $59.97 in 2007’s first quarter. Cable-TV-segment revenue climbed by 5% to $4.71 billion. Average monthly customer bills for Internet access and voice both dipped slightly, amid price cutting.

However, both voice and broadband Internet access grew their subscriber bases, and company brass said broadband is a higher-profit service than cable-TV video. Comcast counted 14.1 million high-speed Internet-access customers at the end of the quarter, up from 12.4 million one year ago, taking digital-subscriber-line customers from telcos that are dissatisfied with DSL’s slower speeds. This more than offset the sting of the slight decline in cable-TV subscribers. Stock analysts, which were upbeat on Comcast’s earnings generally, found its broadband gains particularly encouraging.

Its smaller programming segment -- which includes E! Entertainment Television, The Golf Channel, Versus and G4 -- posted robust results, continuing a sector trend of sparkling gains for basic-cable networks. Programming operating cash flow soared 76% to $113 million and revenue climbed 20% to $363 million.

In a conference call, executives said the programming segment benefited from some delays in booking marketing and programming costs in the first quarter, so percentage growth won’t be so strong going forward, but it will still be robust.

“We delivered healthy growth in revenues, operating cash flow, free cash flow, adjusted EPS [earnings per share] and strong unit additions,” Comcast chairman and CEO Brian Roberts said in a statement. “Our performance demonstrates that our operating strategy is working in an economic and competitive environment that continues to be challenging.”

During the conference call, executives said revenue gains were encouraging but cautioned that Comcast is stepping up marketing spend due to competitive pressures, which will impact expenses. Advertising is increasingly targeted geographically and to specific competitors in geographic areas.

In the quarter, the Philadelphia-based company bought back nearly 2% of its shares at a cost of $1 billion. It also began paying cash dividends to shareholders, with a $185 million dividend issued April 30. Comcast had 3.017 billion common shares outstanding at the end of the quarter, giving it a $64 billion stock-market capitalization based on its share price at Wednesday’s close.

Comcast reaffirmed its guidance for the year, so economic woes are not crimping its outlook at this time. That guidance is for an 8%-10% increase in operating cash flow and consolidated revenue for 2008 and at least a 20% rise in consolidated free cash flow, in part as capital expenditures decline.

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