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DIRECTV (DTV - Analyst Report), the largest satellite TV operator of the U.S., reported first quarter of 2012 financial results, mostly in line with the Zacks Consensus Estimates. The solid result was primarily attributed to the combined effect of net customer additions and increased average revenue per user (ARPU) in the U.S. segment.

However, the company’s net subscriber addition in the most lucrative U.S. region declined 56% year over year. Yesterday, DIRECTV’s closest competitor DISH Network Corp. (DISH - Analyst Report) reported much better net subscriber addition in the U.S. 

Total revenue in the reported quarter came in at $7,046 million, up 12% year over year, and slightly ahead of the Zacks Consensus Estimate of $7,037 million. Quarterly GAAP net income was $731 million or $1.07 per share compared with $674 million or 85 cents per share in the year-ago quarter. Quarterly earnings per share of $1.07 per share were exactly in line with the Zacks Consensus Estimate. Quarterly operating profit before depreciation & amortization (OPBDA) was $1,903 million, up 7.8% year over year. Operating profit in the reported quarter stood at $1,308 million, up 13.3% year over year.

During the first quarter of 2012, DIRECTV generated $1,763 million of cash from operations compared with $1,309 million in the prior-year quarter. Free cash flow (cash flow from operations less capital expenditures) in the reported quarter was $1,010 million compared with $696 million in the year-ago quarter. At the end of the first quarter of 2012, DIRECTV had $4,526 million in cash & cash equivalents and $17,461 million of outstanding debt on its balance sheet compared with $873 million in cash & cash equivalents and $13,464 million of outstanding debt at the end of 2011.

DIRECTV U.S. Segment

Revenue from this segment was $5,499 million, up 6.9% year over year on the back of strong subscriber base and significant ARPU growth. Quarterly ARPU was $91.99 versus $88.79 in the prior-year quarter. Growth in ARPU was mainly fueled by price increases on programming packages and leased boxes, higher advanced service fees and higher penetration of premium channels. Quarterly operating profit before depreciation & amortization upped 3.5% to $1,410 million.  Quarterly operating profit climbed 12.7% to $1,038 million.

Average monthly subscriber churn rate in the reported quarter was 1.44% compared with 1.50% in the prior-year quarter. Quarterly net subscriber addition was 81,000 compared with 184,000 in the year-ago quarter. As of March 31, 2012, DIRECTV U.S. had 19.966 million subscribers, up 2.9% on a yearly basis.

DIRECTV Latin America Segment

Segment revenue was $1,485 million, up 33.3% year over year, on account of record subscriber growth. Quarterly ARPU was $60.59 versus $61.69 in the prior-year quarter, primarily driven by foreign currency fluctuation. Quarterly operating profit before depreciation & amortization increased 21.9% to $468 million and operating profit inched up 13.7% to $249 million.

Average monthly subscriber churn rate in the reported quarter was 1.80% compared with 1.87% in the prior-year quarter. Quarterly net subscriber addition was 593,000 compared with 427,000 in the year-ago quarter. As of March 31, 2012, DIRECTV Latin America had approximately 8.464 million subscribers, up 35.8% year over year.

Recommendation

We maintain our long-term Neutral recommendation for DIRECTV. Currently, DIRECTV has a Zacks#3 Rank, implying a short-term Hold rating on the stock.
 

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