Liberty Global Underperforms

Liberty Global Inc. ( LBTYA - Analyst Report ) declared weak financial results for the third quarter of 2012. Both the top and the bottom line fell below the Zacks Consensus Estimates. In the reported quarter, the company added a net 320,000 organic revenue generating units (RGU), reflecting a year-over-year decline of 2%.

Quarterly GAAP net loss from continuing operations was $22.4 million or a loss of 8 cents per share compared with a net loss of $333.1 million or $1.81 per share in the prior-year quarter. Third-quarter 2012 losses per share of 8 cents were significantly worse than the Zacks Consensus Estimate of an income of 25 cents per share. Quarterly total revenue, at $2,519.1 million, was up 4.2% year over year, but fell below the Zacks Consensus Estimate of $2,584 million.

Quarterly cost of operation was $859 million, up 1.9% year over year. Selling, General and Administrative expenses were $462.6 million, up 3.9% year over year. In the third quarter of 2012, operating income was $509.1 million, up 5.4% year over year.

During the first three quarters of 2012, Liberty Global generated $1,886.2 million of cash from operations compared with $1,858.5 million in the year-ago period. Free cash flow (cash flow from operations less capital expenditures) in the first three quarters of 2012, was $435.5 million compared with $442.8 million in the prior-year quarter.

At the end of the third quarter of 2012, Liberty Global had $4,294.5 million of cash and marketable securities and $26,461.5 million of outstanding debt on its balance sheet compared with $2,626.4 million of cash and marketable securities and $24,757.9 million of outstanding debt at the end of 2011. At the end of the reported quarter, debt-to-capitalization ratio was 0.91 compared with 0.87 at the end of 2011.

Subscriber Statistics

As on September 30, 2012, Liberty Global had 19.5794 million customers in 14 countries. Out of the total, customer count at UPC Broadband, Telnet and VTR was 16.1912 million, 2.134 million and 1.1295 million, respectively. Also, Puerto Rico had 124,700 customers. Total Single-Play customer was 10.8201 million, up 6.9% year over year. Total Double-Play customer was 2.9627 million, up 6.5% year over year. Total Triple-Play customer was 5.7966 million, up 35.5% year over year.

During the reported quarter, Liberty Global added 320,000 net RGUs including net gains of 198,000 and 211,000 subscribers, respectively, for broadband Internet and telephony services and a net loss of 90,000 subscribers for video services. In the third quarter, the company added 180,000 digital video subscribers. At the end of the reported quarter, Liberty Global had 8.8 million digital cable subscribers with a penetration rate of over 50%. In addition, Liberty Global had 30,000 wireless subscribers in Chile.

Segment wise Results

Revenue from total UPC Broadband division was $1,687.4 million, up 7.7% year over year. Within this segment, revenue from Western Europe was $1,384.9 million, up 10.6% year over year. Revenue from Central and Eastern Europe was $273.9 million, down 3.2% year over year. Revenue from Central and other operation was $28.6 million, down 8.9% year over year.

During the quarter, Telenet revenue was $461 million, down 5.7% year over year. VTR revenue was $241 million, up 4% year over year. Corporate and other revenue was $150 million, down 2.8% year over year.

Recommendation

Deployment of high-speed DOCSIS 3.0 network has facilitated the company to compete with Virgin Media Inc. ( VMED - Analyst Report ) and BT Group plc. ( BT - Snapshot Report ) . However, due to weak third-quarter 2012 results, we maintain our long-term Neutral recommendation on Liberty Global. Currently, it holds a short-term Zacks #2 Rank (Buy) on the stock.