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Time Warner Cable Inc. (TWC - Analyst Report) reported robust second-quarter 2012 financial results, with both the top line and the bottom line beating the Zacks Consensus Estimates.

The solid performance was mainly buoyed by: (1) newly acquired entities, e.g. Insight, NewWave, and NeviSite enhanced the company’s overall financials. Moreover, growth rate of revenue exceeds the growth rate of operating expenses (2) increasing demand for residential high-speed Internet services, and (3) continuation of strong performance of the company’s Business Services segment.    

Quarterly GAAP net income was $452 million or $1.43 per share, compared with net income of $420 million or $1.24 per share in the prior-year quarter. Second-quarter 2012 adjusted (excluding special items) earnings per share of $1.48 handily beat the Zacks Consensus Estimate of $1.38.

Total revenue in the reported quarter increased 9.3% year over year to $5,404 million, surpassing the Zacks Consensus Estimate of $5,367 million.

Quarterly adjusted operating income before depreciation and amortization (OIBDA) climbed 10.3% year over year to $2,011 million. GAAP operating income grew 9.6% year over year to $1,990 million. During the second quarter of 2012, Time Warner Cable repurchased 5.6 million shares for a total consideration of $440 million. In the reported quarter, the company also paid $177 million in dividends.

During the first half of 2012, Time Warner Cable generated $2,920 million of cash from operations, compared with $3,080 million in the prior-year period. Free cash flow in the first half was $1,520 million compared with $1,717 million in the year-ago quarter.

At the end of the second quarter of 2012, Time Warner Cable had $3,226 million in cash & marketable securities compared with $5,177 million at the end of 2011. Total debt at the end of the reported quarter was $27,236 million compared with $24,320 million at the end of 2011. At the end of the second quarter of 2012, debt-to-capitalization ratio was 0.78 compared with 0.76 at the end of 2011.

Residential Services Segment

Quarterly total revenue was $4,617 million, up 7.4% year over year. Within the segment, video revenue was $2,797 million, up 4.5% year over year. High-speed data revenue was $1,266 million, up 13.5% year over year. Voice revenue was $539 million, up 8.5% year over year. Other revenue was $15 million, up 25% year over year.

Business Services Segment

Quarterly revenue was $464 million, up 28.5% year over year. Within the segment, video revenue was $81 million, up 15.7% year over year. High-speed data revenue was $224 million, up 26.6% year over year. Voice revenue was $73 million, up by a substantial 58.7% year over year. Wholesale transport revenue was $44 million, up 12.8% year over year. Other revenue was $42 million, up 44.8% year over year.

Advertising Segment

Advertising revenue increased 17.8% year over year to $265 million.   

Other Segment

Other revenue was $58 million, remaining the same year over year.

Subscriber Statistics

At the end of the second quarter of 2012, Residential Video subscribers’ base was 12.299 million. Time Warner Cable lost 169,000 residential video subscribers in the previous quarter. Commercial Video subscribers’ base was 185,000. Residential High-speed Data subscribers’ base was 10.775 million.

Time Warner Cable added 59,000 residential High-Speed Data subscribers. Commercial High-speed Data subscribers’ base was 433,000. The company also added 13,000 commercial High-speed Data subscribers.

Residential voice subscribers’ base was 4.990 million. Time Warner Cable added 45, 000 residential voice subscribers. Commercial voice subscribers’ base was 198,000. The company added 14,000 commercial voice subscribers.

In the previous quarter, Time Warner Cable gained 54,000 Triple Play subscribers totaling 4.244 million, lost 85,000 Double Play subscribers totaling 5.099 million, and also lost 30,000 Single Play subscribers totaling 5.950 million.

Recommendation

After Comcast Corp. (CMCSA - Analyst Report), Time Warner Cable is the second largest cable multiple-service operator (MSO) in the U.S. We reiterate our long-term Neutral recommendation on Time Warner Cable. Currently, the company enjoys a Zacks #3 Rank (Hold) on the stock.

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