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Liberty Global (LBTYA) Down 5.5% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Liberty Global (LBTYA - Free Report) . Shares have lost about 5.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Liberty Global due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Liberty Q3 Revenues Up On Strong U.K./Ireland RGU additions

Liberty Global reported third-quarter 2018 loss of 56 cents per share compared with the year-ago quarter’s loss of 70 cents.

The Zacks Consensus Estimate for earnings was pegged at 27 cents per share.

Revenues on a reported basis rose 1.3% year over year to $2.96 billion, which beat the Zacks Consensus Estimate of $2.94 billion. On a rebased basis, revenues increased 1.9% from the year-ago quarter.

Notably, in May 2018, Liberty Global entered into an agreement with Vodafone to sell operations in Germany, Romania, Hungary and the Czech Republic. The transaction is expected to close not before mid-2019.

Moreover, on Jul 31, 2018, Liberty Global completed the sale of its Austrian operations for net cash proceeds of €1.8 billion ($2.1 billion on the transaction date).

Top-Line Details

Residential cable revenues decreased 0.7% year over year. Residential mobile revenues were up 2.4%. Moreover, B2B revenues increased 6.1% from the year-ago quarter.

Liberty Global added 28,000 subscribers (revenue generating units or RGUs) during the quarter, down 51% from the year-ago quarter due to weakness in Belgium and Switzerland.

The company lost 36,700 video RGUs compared with loss of 29,100 RGUs in the year-ago quarter. Liberty Global added 24,000 data RGUs, significantly down from 62,700 RGUs added in the year-ago quarter. Voice RGUs addition was 40,800, much better than 23,800 in the prior-year quarter.

Average revenue per unit (ARPU) per cable customer relationships increased 0.2% to $57.17. On a rebased basis, growth was 1.7%.

U.K./Ireland RGU additions were 105,000, up from 92,400 in the year-ago quarter. Management stated that strong volume growth in both Project Lightning and legacy footprints drove subscriber addition. Moreover, churn rate improved year over year, benefiting from deployments of next-generation V6 set-top box and Hub 3 WiFi router.

Revenues on a reported basis increased 3.6% year over year to $1.67 billion. On a rebased basis, U.K./Ireland revenues climbed 4.1%, driven by 2.9% growth in residential cable business supported by subscriber growth and accelerating cable ARPU, 13% rebased growth in residential mobile revenues and 2.8% rebased revenue growth in the company’s B2B business.

RGU attrition in Belgium was 52,000 compared with 14,600 in the year-ago quarter, reflecting negative impacts of stiff competition and higher churn rate due to price increase in July.

Belgium revenues on a reported basis decreased 1.6% year over year to $746.8 million. On a rebased basis, revenues decreased 1.5% due to lower cable subscription revenues and mobile revenues.

Switzerland RGU attrition was 41,500 compared with a loss of 15,500 in the year-ago quarter, primarily hurt by intensifying competition. Revenues on a reported basis decreased 8.1% year over year to $323.3 million. On a rebased basis, revenues decreased 6.3%, primarily due to lower residential cable revenues.

Liberty Global expects a turnaround in the Swiss market based on revamped video products, a refreshed MySports programming line-up, the launch of 1 Gig broadband speeds, and a new and improved MVNO offering. The introduction of Horizon 4 is a key catalyst.

Continuing CEE (Poland, Slovakia and DTH) gained 17,200 RGUs compared with a loss of 4,900 in the year-ago quarter. Revenues on a reported basis decreased 0.9% year over year to $148.6 million. On a rebased basis, revenues increased 1% due to lower residential cable revenues.

Liberty Global added 70,000 subscribers to its next-generation video platforms (including Horizon TV, Horizon-Lite, TiVo, Virgin TV V6 and Yelo TV) and reached 6.7 million or 78% of the company’s total cable video base (excluding DTH) by the end of the reported quarter.

Liberty also deployed 552,000 latest WiFi connect box. Its installed base reached almost 5.6 million or 61% of broadband subscribers across the company’s continuing operations.

Mobile Details

In mobile, Liberty Global added 18,000 subscribers.

Belgium added 4,500 mobile subscribers, while Switzerland added 8,000, driven by bundling success.

U.K./Ireland added 5,000 mobile subscribers as postpaid growth was partially offset by low-ARPU prepaid losses. The penetration of 4G at Virgin Media increased to 75% of the company’s postpaid subscriber base at the end of the third quarter.

Liberty Global stated that more than 50% of the company’s mobile base has now migrated to MVNO platform in the U.K., allowing it to offer more converged bundles.

Mobile ARPU (including interconnect revenues) on a reported basis decreased 3.5% to $19.39. On a rebased basis, the figure declined 1.8%.

Further, mobile ARPU (excluding interconnect revenues) on a reported basis decreased 0.2% to $15.56. On a rebased basis, the figure declined 1.7%.

Operating Details

In the third quarter, programming and other direct costs of services increased 1.7% from the year-ago quarter to $798.8 million.

Depreciation & amortization (D&A) expenses decreased 1.9% to $935.3 million. Selling, general & administrative (SG&A) expenses were $475.5 million, up 1.2% from the year-ago quarter.

Operating income decreased 1% from the year-ago quarter to $208.6 million. However, operating margin contracted 20 basis points (bps) to 7.1%.

Segment operating cash flow (operating income after adjusted for non-cash items) increased 5.2% year over year to $1.29 billion on a rebased basis.

U.K./Ireland operating cash flow (OCF) on a reported basis increased 4.8% year over year to $742.1 million. On a rebased basis, OCF increased 5.3%, driven by increased revenues and lower marketing costs.

Belgium OCF on a reported basis climbed 7.6% year over year to $383.4 million. On a rebased basis, OCF increased 8.4% due to lower direct costs as a result of the migration of subscribers to its own mobile network.

Switzerland OCF on a reported basis declined 10.8% year over year to $191 million. On a rebased basis, OCF decreased 9% due to decline in residential cable subscription revenues.

Finally, Continuing CEE OCF on a reported basis decreased 1.4% year over year to $69.6 million. On a rebased basis, OCF increased 0.5%.

Balance Sheet & Cash Flow

As of Sep 30, 2018, Liberty had $949.2 million cash and cash equivalents compared with $862.4 million as of Jun 30, 2018.

Cash provided by operating activities was $587.2 million, while free cash flow from continuing operations was $165.3 million.

Liberty Global bought stock worth nearly $400 million in the reported quarter.

2018 Guidance

Liberty Global expects to deliver approximately 4% (down from 5% provided in the previous guidance) rebased OCF growth from continuing operations.

Adjusted free cash flow is estimated to be around $1.6 billion. Property and equipment additions are projected to be $5.1 billion for the full year.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.

VGM Scores

At this time, Liberty Global has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Liberty Global has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.




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