Quarterly Earnings: DirecTV Posts Strong Q1 Results, Expands Share Buyback

Satellite operator records lowest churn in 10 years
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Satellite operator DirecTV recorded increased revenues and net income for the first quarter of 2008 compared to a year ago, driven largely by subscriber growth and lower churn despite fresh competition from telcos offering new video services.

Overall revenues for DirecTV Group, which runs a direct-to-home satellite service in Latin America in addition to its U.S. operation, increased 17% to $4.59 billion, compared to $3.91 billion last year, while first quarter net income rose 10% from $336 million to $371 million. Earnings per share increased 19% to $0.32 compared with the same period last year.

DirecTV’s U.S. operation increased revenues 14% to $4.0 billion, while its average revenue per subscriber rose 8.6% to $79.70, driven largely by programming package price increases and higher lease fees for HD and DVR set-tops. Operating profit before depreciation and amortization was up 22% to $1.1 billion, while free cash flow rose from $262 million in last year’s Q1 to $505 million this year.

DirecTV US had net subscriber additions of 275,000, a 17% jump from last year, due to a 4% increase in gross subscriber additions and a reduction in monthly churn to 1.36%. DirecTV US ended the quarter with 17.04 million subscribers overall.

The reduction in churn was most impressive, according to Sanford Berstein analyst Craig Moffett, as it represents a 10-year low for the company and came amidst lower spending on retention marketing that Moffett had forecast ($8.14 per sub versus Bernstein’s forecast of $9.41).

“While we believe all operators are benefiting from cyclically low churn rates due to a lack of housing velocity, DirecTV's results are nevertheless exceptionally strong, and speak to the consumer appeal of their product, and the strength of their brand and customer service proposition,” wrote Moffett in a research note to investors this morning.

DirecTV president and CEO Chase Carey also announced that DirecTV’s board has approved an increase in its share repurchase program to $3.0 billion. In connection with the share repurchase plan, DirecTV parent Liberty Media has agreed to limit its voting power to its current ownership percentage of 47.9%, regardless of the number of shares DirecTV buys through the repurchase program.

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