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Pay-TV Surge Boosts Televisa Profit

TEF TV AMX

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Driven by strong growth of its pay-TV services, Grupo Televisa S.A.B. (TV - Analyst Report) handily beats the Zacks Consensus Estimates in the third quarter of 2012. Quarterly consolidated net income was approximately $222 million, up by a considerable 41.5% year over year. The annualized upsurge primarily resulted from an increase in the top line and a significant reduction of financing costs. Third-quarter earnings per Global Depository Shares were 39 cents, well above the Zacks Consensus Estimate of 33 cents.

Quarterly consolidated net revenue of around $1,347 million was an improvement of 8.7% over the prior-year quarter and exactly in line with the Zacks Consensus Estimate. Except the Other business segment, all the remaining four business segments of Grupo Televisa witnessed considerable sales growth.

Quarterly gross margin was 58.3% compared with 56.7% in the year-ago quarter. Third-quarter consolidated operating income was $377.4 million, up 8.6% over the prior-year quarter. Quarterly operating margin was 28% compared with 28.1% in the year-ago quarter.

Capital expenditure, during the reported quarter, was $228.2 million. At the end of the third quarter of 2012, Televisa had a little over $1,675 million in cash and marketable securities compared with $1,549.9 million at the end of 2011. At the end of the reported quarter, Televisa had $4,113.9 million of outstanding debt on its balance sheet compared with $4,059.1 million at the end of 2011. At the end of the previous quarter, debt-to-capitalization ratio was around 0.45 compared with 0.49 at the end of 2011.

Content Segment

Quarterly total revenue was $648 million, up 4.4% year over year. Operating profit was $328 million, up 5.6% year over year. Quarterly operating margin was 50.6% compared with 50% in the year-ago quarter. Royalty from Univision was $62 million, up 6.5% year over year.  

Within this segment, Advertising revenue was $474.9 million, up 1% year over year. Network Subscription revenue was $63.8 million, up 22.2% year over year. Licensing and Syndication revenue was $109.3 million, up 11.3% year over year.  

Publishing Segment

Quarterly revenue was $64.3 million, up 16.7% year over year. Operating profit was $9.6 million, up 1% year over year. Quarterly operating margin was 14.9% compared with 15.1% in the year-ago quarter.

Sky Segment

Quarterly revenue came in at $288.9 million, up 18.9% year over year. Operating profit was $133 million, up 17.6% year over year. Quarterly operating margin was 46% compared with 46.5% in the year-ago quarter.

Cable and Telecom Segment

Quarterly revenue was $301.9 million, up 14.6% year over year. Operating profit was $111 million, up 19% year over year. Quarterly operating margin came in at 36.8% compared with 35.4% in the year-ago quarter.

Other Businesses Segment

Quarterly revenue was $71.4 million, down 4.4% year over year. Operating income was $0.9 million compared with an operating loss of $0.5 million in the year-ago quarter. Quarterly operating margin was 1.3% compared with a negative 0.7% in the year-ago quarter.

Subscriber Statistics

As of September 30, 2012, Televisa had 2,263,631 Video subscribers; 1,249,377 Internet Broadband subscribers; and 729,982 Telephony subscribers, which together constitutes 4,242,990 revenue generating units (RGU) in the Cable and Telecom segment. As of September 30, 2012, Televisa had 4,883,388 net active Satellite TV subscribers including 161,484 commercial subscribers. These figures were up 27.7% and 3.8% year over year, respectively. In the reported quarter, Sky segment generated a record-high 332,693 net active subscribers.

Our Recommendation

Televisa is on the verge of entering into the lucrative Mexican wireless market through its partnership with Grupo Iusacell. Mexican wireless market is highly monopolistic. Telcel, a unit of America Movil SAB (AMX - Analyst Report), controls over 70% of the market, Telefonica SA (TEF - Analyst Report) controls more than 22%, and Iusacell controls hardly 5% of market share. Undoubtedly, a foothold in the lucrative wireless market will make Televisa a highly integrated broadcasting and telecom operator in Mexico.

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

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