Time Warner Cable Inc. (TWC - Analyst Report) reported its first-quarter 2013 financial results, where the bottom line beat the Zacks Consensus Estimate while the top line missed the same. Despite the beat, the company lost a major share of video subscribers in the reported quarter.
Quarterly adjusted (excluding special items) earnings per share of $1.41 beat the Zacks Consensus Estimate of $1.38. Quarterly GAAP net income was $401 million or $1.34 per share against $382 million or $1.20 per share in the prior-year quarter.
At $5,475 million, quarterly total revenue fell short of the Zacks Consensus Estimate of $5,488 million, but was up 6.6% year over year. The growth in revenues was mainly attributed to improved advertising sales, strong high-speed data revenue growth and successful integration of Insight Communications.
Quarterly adjusted operating income before depreciation and amortization (OIBDA) climbed 2.1% year over year to $1,912 million. GAAP operating income grew 1.7% year over year to $1,060 million. During the first quarter of 2013, Time Warner Cable repurchased 7.1 million shares for $660 million and also paid $195 million in dividends.
During the reported quarter, Time Warner Cable generated $1,394 million of cash from operations compared with $1,383 million in the prior-year period. Free cash flow in the first quarter of 2013 was $624 million compared with $677 million in the year-ago quarter.
At the end of the first quarter of 2013, Time Warner Cable had $3,268 million in cash and marketable securities compared with $3,454 million at the end of 2012. Long-term debt at the end of the reported quarter was $24,248 million against $25,171 million at the end of 2012. At the end of the first quarter of 2013, the debt-to-capitalization ratio was 0.78 compared with 0.77 at the end of 2012.
Residential Services Segment
Quarterly total revenue was $4,611 million, up 4% year over year. Within the segment, video revenues were $2,671 million, down 1.5% year over year. High-speed data revenues were $1,406 million, up 17.3% year over year. Voice revenues were $519 million, up 2.2% year over year. Other revenues were $15 million, flat year over year.
Business Services Segment
Quarterly revenues were $537 million, up 25.2% year over year. Within the segment, video revenues were $84 million, up 10.5% year over year. High-speed data revenues were $256 million, up 23.1% year over year. Voice revenues were $96 million, up by a substantial 52.4% year over year. Wholesale transport revenues were $55 million, up 34.1% year over year. Other revenues were $46 million, up 12.2% year over year.
Advertising revenues surged 8.1% year over year to $228 million.
Other revenues came in at $99 million, up 62.3% year over year.
At the end of first quarter of fiscal 2013, Residential Video subscribers’ base was 11.911 million. Time Warner Cable lost 119,000 residential video subscribers in the reported quarter. Commercial Video subscribers’ base was 189,000. Residential High-speed Data subscribers’ base was 11.066 million.
Time Warner Cable added 131,000 residential High-Speed Data subscribers. Commercial High-speed Data subscribers’ base was 472,000. The company also added 12,000 commercial High-speed Data subscribers. Residential voice subscribers’ base was 4.989 million. Commercial voice subscribers’ base was 237,000. Time Warner Cable also gained 13,000 commercial voice subscribers.
In the first quarter, Time Warner Cable lost 35,000 Triple play subscribers totaling 4.259 million, gained 38,000 Double play subscribers totaling 5.074 million, and also gained 32,000 Single play subscribers totaling 5.939 million.
We believe that Time Warner Cable will benefit from the launch of popular sports channels in the U.S. market, going forward. Of late, sports entertainment has become a lucrative source of revenues for the cable MSO’s. So, Time Warner Cable sold the distribution rights to DirecTV (DTV - Analyst Report) and AT&T Inc.’s (T - Analyst Report) U-Verse, thereby boosting its top line.
Additionally, the second-largest cable MSO is also planning to hike its rates on the back of multiple deals with different sports majors like Los Angeles Galaxy, Los Angeles Sparks, Los Angeles Lakers and Los Angeles Dodgers.
However, losing residential video subscribers concerns Time Warner Cable as customers are opting for cheaper video streaming service providers like Netflix Inc. (NFLX - Analyst Report), Hulu.Com and YouTube.
Time Warner Cable currently carries a Zacks Rank #3 (Hold).