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Liberty Interactive Inc. (LINTA - Analyst Report) reported mixed financial results for the first quarter of 2012. Quarterly total revenue of $2,314 million was an improvement of 7.2% year over year, but fell below the Zacks Consensus Estimate of $2,368 million. Quarterly net income was $91 million or 16 cents per share compared with $44 million or 7 cents per share in the year-ago quarter. First-quarter 2012 earnings per share of 16 cents were exactly in line with the Zacks Consensus Estimate.

Quarterly total operating income came in at $258 million compared with $213 million in the year-ago quarter. In the reported quarter, consolidated adjusted OIBDA came in at $390 million compared with $363 million in the year-ago quarter. In the previous quarter, Liberty Interactive repurchased approximately 17.2 million Class A shares for a total consideration of $324.5 million.  

In the first quarter of 2012, Liberty Interactive generated $330 million of cash compared with $108 million in the year-ago quarter. Free cash flow (cash flow from operations less capital expenditures) in the reported quarter was $262 million compared with $67 million in the prior-year quarter.

At the end of the first quarter of 2012, Liberty Interactive had total consolidated cash and marketable securities of $2,137million compared with $2,015 million at the end of 2011. Liberty Interactive exited the first quarter of 2012 with $6,183 million of outstanding debt compared with $6,039 million at the end of 2011. At the end of the previous quarter, debt-to-capitalization ratio was 0.43 compared with 0.42 at the end of 2011.

QVC Segment

Quarterly total revenue of QVC segment was $1,932 million, up 5% year over year. Consolidated adjusted OIBDA was $120 million, up 17% year over year. Consolidated operating income was $258 million, up 15% year over year. QVC U.S. quarterly revenue inched up 4% year over year to $1,240 million. Gross margin was 35.6% compared with 35.1% in the year-ago quarter. Adjusted OIBDA was $270 million, up 3.9% year over year. Operating income was $171 million, up 7.5% year over year. QVC International quarterly revenue climbed 8% year over year to $692 million. Gross margin was 37.7% compared with 36.9% in the year-ago quarter. Adjusted OIBDA was $120 million, up 16.5% year over year. Operating income was $87 million, up 31.8% year over year.

eCommerce Segment

Quarterly revenue of eCommerce Business segment was $382 million, up 18% year over year. Quarterly adjusted OIBDA was $34 million, up 17% year over year. Operating income was $15 million, up 88% year over year.

Formation of Tracking Stocks

The Board of Directors of Liberty Interactive has decided to split its shares into two tracking stock, viz., Liberty Interactive and Liberty Ventures. The Liberty Interactive tracking stocks will follow QVC, the eCommerce companies, a 34% stake in HSN Inc. (HSNI - Snapshot Report), approximately $500 million of cash and $5 billion of debt and other liabilities. Liberty Venture will look after minority interests of Expedia Inc. (EXPE - Analyst Report), Time Warner Inc. (TWX - Analyst Report), Time Warner Cable Inc. (TWC - Analyst Report), AOL, Interval Leisure Group, Tree.com and Liberty’s green-energy investments. Liberty Venture will be assigned around $1.25 billion of cash and $3 billion principal amount of Liberty Interactive’s publicly traded exchangeable debentures.

Recommendation

We maintain our long-term Neutral recommendation on Liberty Interactive. Currently, the stock holds a short-term Zacks #4 Rank (Sell).

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