Liberty Global Posts Robust 3Q

Yesterday, after market close, Liberty Global Inc. ( LBTYA - Analyst Report ) declared solid financial results for the third quarter of 2011. In the previous quarter, the company added a net 327,000 revenue generating units (RGU), up 96% year over year. This is a historic high third-quarter performance.

Quarterly GAAP net loss was $333.1 million or $1.18 per share compared with a net income of $278.5 million or 99 cents per share in the prior-year quarter. However, the third quarter of 2011 adjusted (excluding special items) EPS of 37 cents was far ahead of the Zacks Consensus Estimate of 30 cents.

Quarterly total revenue of $2,607.9 million was an improvement of 16.1% year over year, but fell below the Zacks Consensus Estimate of $2,574 million. Year-over-year growth of the top line was primarily attributable to the consolidation of Unitymedia operations.

Quarterly cost of operation was $935.6 million, up 16.4% year over year. Selling, General and Administrative expenses were $474.2 million, up 21.3% year over year. In the third quarter of 2011, operating income was $521.9 million, up 18.3% year over year.

During the first nine months of 2011, Liberty Global generated $1,858.5 million of cash from operations compared with $1,591.6 million in the prior-year period. Free cash flow (cash flow from operations less capital expenditures) in the reported period was $365.4 million compared with $294.3 million in the year-ago period.

At the end of the third quarter of 2011, Liberty Global had $2,371 million of cash & marketable securities and $22,364 million of outstanding debt on its balance sheet compared with $4,921.1 million of cash & marketable securities and $22,462.6 million of outstanding debt on its balance sheet at the end of fiscal 2010. At the end of the third quarter of 2011, debt-to-capitalization ratio was 0.87 compared with 0.86 at the end of fiscal 2010.

Subscriber Statistics

At the end of the third quarter of 2011, Liberty Global had 17.9441 million customers in 14 countries, which is an increase of 1.6% year over year. UPC Broadband customer was 13.7430 million, up 2.4% year over year. Telnet customer was 2.2141 million, down 3.2% year over year. VTR customer was 1.0996 million, up 2.9% year over year. Other segment customer was 887,400, up 0.5% year over year.

During the reported quarter, Liberty Global added 327,000 net RGUs (Revenue Generating Units) including net gains of 192,000 and 193,000 subscribers, respectively, for broadband Internet and telephony services and a net loss of 58,000 subscribers for video services.

Total Single-Play customer was 10.8833 million, down 5% year over year. Total Double-Play customer was 2.7815 million, up 6.4% year over year. Total Triple-Play customer was 4.2793 million, up 19.3% year over year.

Segment wise Results

Revenue from total UPC Broadband division was $1,566.3 million, up 18% year over year. Within this segment, revenue from Western Europe was $1,251.8 million, up 18.3% year over year. Revenue from Central and Eastern Europe was $283.1 million, up 16.9% year over year. Revenue from Central and other operation was $31.4 million, up 13.8% year over year.

Telenet revenue was $488.8 million, up 14.8% year over year. VTR revenue was $231.7 million, up 12.6% year over year. Austar revenue was $189.1 million, up 16.2% year over year. Corporate and other revenue was $154.4 million, up 7% year over year.

Businesses Restructuring Update

On July 11, 2011, Liberty Global decided to divest its operations in Australia. Liberty Global holds 54% stake of Austar United Communications Ltd., a leading pay-TV service provider in Australia. Austar announced that Liberty Global and Foxtel, the largest pay-TV operator in Australia, have entered into a definitive agreement, whereby Foxtel will acquire 100% stake of Austar for approximately $2.1 billion. Liberty Global will get around $1.08 billion through this divestiture.

Foxtel is jointly held by Australian telecom giant Telstra, News Ltd., a division of News Corp. ( NWSA - Analyst Report ) , and Consolidated Media Holdings. All these three shareholders agreed upon the deal. However, the proposed acquisition still needs to clear the Australian regulatory hurdles and the minority shareholder approval of Austar.

Additionally, Liberty Global is also confident that it will get regulatory clearance for acquiring Kabel Baden-Wuerttemberg GmbH & Co KG, the third largest cable operator in Germany by the end of 2011. Last March, Liberty Global won the auction to purchase Kabel Baden for approximately $4.5 billion.

Recommendation

We maintain our long-term Neutral recommendation on Liberty Global. Currently, it holds a short-term Zacks #3 Rank (Hold) on the stock.