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Grupo Televisa S.A.B. (TV - Analyst Report), the largest integrated cable and media company in Mexico, reported third-quarter 2011 financial results, which fell below the Zacks Consensus Estimates. Significant surge in depreciation and amortization charges impacted the company’s net income as Televisa spent more on new customers for expanding its client base.  Furthermore, nearly $34.3 million of non-cash foreign exchange loss also affected the company’s bottom line.

Quarterly consolidated net income was approximately $147.2 million, down 6.8% year over year. Third-quarter EPGDS (Earnings per Global Depository Shares) was 26 cents, well below the Zacks Consensus Estimate of 29 cents. However, quarterly consolidated net revenue of $1,149.4 million was an improvement of 8.1% over the prior-year quarter. Royalty from Univision was $58.2 million, up 37.8% year over year.

Quarterly gross margin was 56.5% compared with 54.8% in the year-ago quarter. Quarterly depreciation and amortization cost was $132.6 million, up 12.5% year over year. Third-quarter consolidated operating income was $334 million, up 11.7% over the prior-year quarter. Quarterly operating margin was 29.1% compared with 28.1% in the year-ago quarter.

At the end of the third quarter of 2011, Televisa had approximately $1,668.3 million cash and marketable securities compared with $2,548.8 million at the end of fiscal 2010. Capital expenditure during the reported quarter was $194.4 million. At the end of the third quarter of 2011, Televisa had $4,078.6 million of outstanding debt on its balance sheet compared with $3,894.8 million at the end of fiscal 2010. At the end of the reported quarter, debt-to-capitalization ratio was 0.51 compared with 0.47 at the end of fiscal 2010.

Television Broadcasting Segment

Quarterly revenue was $432.1 million, up 2.4% year over year. Operating profit was $210.1 million, up 4% year over year. Quarterly operating margin was 48.6% compared with 47.9% in the year-ago quarter.

Pay Television Networks Segment

Quarterly revenue was $67.1 million, up 15% year over year. Operating profit was $35.9 million, up 20.8% year over year. Quarterly operating margin was 53.6% compared with 51% in the year-ago quarter.

Programming Exports Segment

Quarterly revenue was $72 million, up 29.6% year over year. Operating profit was $39.5 million, up 47.6% year over year. Quarterly operating margin was 54.8% compared with 48.1% in the year-ago quarter.

Publishing Segment

Quarterly revenue was $58.4 million, up 2.9% year over year. Operating profit was $8.8 million, up 33.2% year over year. Quarterly operating margin was 15% compared with 11.6% in the year-ago quarter.

Sky Segment

Quarterly revenue came in at $225.5 million, up 8.2% year over year. Operating profit was $104.9 million, up 4.2% year over year. Quarterly operating margin was 46.5% compared with 48.3% in the year-ago quarter.

Cable and Telecom Segment

Quarterly revenue was $244.4 million, up 13.1% year over year. Operating profit was $86.2 million, up 26.5% year over year. Quarterly operating margin came in at 20.8% compared with 19.9% in the year-ago quarter.

Other Businesses Segment

Quarterly revenue was $75.3 million, up 6.7% year over year. Operating income was $0.15 million, up 106.2% year over year. Quarterly operating margin was 0.2% compared with a negative 3.3% in the year-ago quarter.

Subscriber Statistics

As on September 30, 2011, Televisa had 2,122,159 video subscribers; 975,084 broadband subscribers; and 609,832 telephony subscribers. Together these constitute 3,707,075 revenue generating units (RGU) in the Cable and Telecom segment. As on September 30, 2011, Televisa had 3,824,278 gross active satellite TV subscribers including 155,608 commercial subscribers. These figures were up 38.9% and 4.4% year over year, respectively. In the previous quarter, the company added 238,205 gross active satellite TV subscribers.

Our Recommendation

Televisa is at present facing a competitive threat from the telecom giantTelefonos de Mexico S.A.B. , who is trying to enter into the Mexican broadcast TV market passively through a deal with Dish Mexico.  We maintain our long-term Underperform recommendation on Televisa. Currently, it holds a short-term Zacks #4 Rank (Sell) on the stock.

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