Liberty Media Corp. (LMCA - Analyst Report) reported mixed financial results for the third quarter of 2012. Quarterly GAAP net income was $1,007 million or $8.46 per share compared with a net loss of $42 million or a loss of $1.15 per share. However, quarterly adjusted earnings per share of 34 cents were significantly lower than the Zacks Consensus Estimate of 84 cents. On the revenue front, it rose 2.8% year over year to $555 million and was also well above the Zacks Consensus Estimate of $529 million.
In the third quarter of 2012, Liberty Media’s adjusted OIBDA (operating income before depreciation and amortization) came in at $137 million, up 6.2% year over year. Quarterly operating income was $111 million, remaining same year over year. In the previous quarter, Liberty Media repurchased 0.2 million shares for a total cash consideration of $22.3 million.
During the first nine months of 2012, Liberty Media generated $228 million of cash from operations compared with $316 million in the prior-year period. Free cash flow in the first nine months of 2012 was $216 million compared with $307 million in the year-ago period.
At the end of the third quarter of 2012, Liberty Media had $2,943 million of cash and cash equivalents compared with $3,929 million at the end of 2011. Total debt, at the end of the reported quarter, was $541 million compared with $1,295 million at the end of 2011. At the end of the previous quarter, debt-to-capitalization ratio was 0.08 compared with 0.09 at the end of 2011.
Starz LLC Segment
Revenue in the third quarter of 2012 was $400 million, remaining same year over year. Adjusted OIBDA was $108 million, remaining same year over year. Operating income was $99 million, showing a yearly decline of 2%. At the end of the reported quarter, total subscribers base of Starz notched up 9% to 20.8 million while its sister TV channel Encore had 34.3 million subscribers, up 5% year over year.
Liberty Media has decided to spin-off its Starz entertainment segment as a separate entity by the end of 2012. According to management, the spin-off of Starz will unlock the latter’s value by optimizing its capital structure thereby enabling Starz to find several alternative ways and partnerships for both content creation and distribution.
The spin-off is envisioned to provide a cash dividend of $1.8 billion to Liberty Media. We believe the spin-off of Starz will help Liberty Media to increase its stake in Barnes & Noble Inc. (BKS - Snapshot Report) and Live Nation Entertainment Inc. (LYV - Snapshot Report), together with SIRIUS XM Radio Inc. (SIRI - Analyst Report).
We maintain our long-term Neutral recommendation on Liberty Media. Currently, it holds a short-term Zacks #3 Rank (Hold) on the stock.