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Liberty Global (LBTYA) Q3 Earnings Improve Y/Y, Revenues Fall

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Liberty Global (LBTYA - Free Report) reported third-quarter 2019 net income of $12,847.9 million compared with the year-ago quarter’s $974.1 million. These include a $12.2-billion gain from the sale of the company’s operations in Germany, Hungary, Romania and the Czech Republic recognized during the reported quarter.

On Jul 31, the company completed the divestiture of its operations in Germany, Hungary, Romania and the Czech Republic to Vodafone for $21.3 billion. Liberty Global completed the sale of its DTH business for €180 million ($202 million) in May.

Revenues from continuing operations, including Switzerland, declined 3% year over year to $2.84 billion. On a rebased basis, revenues decreased 0.6% from the year-ago quarter. Excluding Switzerland, revenues declined 0.2%.

Liberty Global lost 76,300 subscribers (revenue generating units or RGUs) during the quarter against a subscriber addition of 32,000 in the year-ago quarter, primarily due to weakness at Virgin Media. Excluding Switzerland operations, the company lost 62,200 RGUs in the reported quarter.
 

 

Notably, on Feb 27, Liberty Global inked a share purchase agreement (“SPA”) to sell its operations in Switzerland (UPC Switzerland) to Sunrise Communications Group AG (Sunrise). The agreement was amended on Oct 22, which provided Liberty Global the right to terminate the “SPA” at any time.

Top-Line Details

Residential cable revenues decreased 1.3% year over year to $1.82 billion. Moreover, B2B revenues declined 0.7% from the year-ago quarter to $463.3 million. However, residential mobile revenues increased 0.8% to $401 million.

The company lost 65,700 video RGUs compared with 32,600 RGUs lost in the year-ago quarter. It also lost 21,400 voice RGUs compared with a gain of 40,700 RGUs in the year-ago quarter.

Further, Liberty Global added 10,800 data RGUs, significantly down from 23,900 RGUs added in the year-ago quarter.

Average revenue per unit (ARPU) per cable customer relationships decreased 4.2% to $57.94. On a rebased basis, growth was 0.3%.

U.K./Ireland RGU loss was 52,700 against a gain of 105,300 in the year-ago quarter due to slower growth in voice and video.

U.K./Ireland revenues, on a reported basis, decreased 5.3% year over year to $1.58 billion. On a rebased basis, U.K./Ireland revenues were almost flat year over year.

U.K./Ireland (Virgin Media) ARPU per cable customer relationships increased 0.6% to £51.41. On a rebased basis, growth was 0.5%.

RGU attrition in Belgium was 36,000 compared with 52,900 in the year-ago quarter.  

Belgium revenues, on a reported basis, decreased 3.3% year over year to $721.9 million. On a rebased basis, revenues dropped 2% due to lower B2B non-subscription revenues and residential cable revenues.

Belgium (Telenet) ARPU per cable customer relationships increased 2.4% (on a rebased basis also) to €57.84.

Switzerland RGU attrition was 14,100 compared with subscriber loss of 41,500 in the year-ago quarter. Revenues, on a reported basis, decreased 3.6% year over year to $311.7 million. On a rebased basis, revenues decreased 3.3%, primarily due to lower residential cable subscription revenues.

UPC ARPU per cable customer relationships decreased 0.9% to €37.06. On a rebased basis, ARPU declined 3.5%.

Continuing CEE (Poland and Slovakia) gained 26,500 RGUs compared with 21,100 in the year-ago quarter. Growth was primarily driven by improved sales in Poland.

Continuing CEE revenues, on a reported basis, declined 2.6% year over year to $117.2 million. On a rebased basis, revenues increased 2.4% due to higher residential cable subscription revenues.

Liberty Global built 162,000 new premises in the reported quarter, including 119,000 in the U.K. & Ireland.

Mobile Details

In mobile, Liberty Global added 132,400 subscribers compared with 23,700 in the year-ago quarter.

Belgium added 31,000 mobile subscribers supported by the company’s converged WIGO offering. In U.K./Ireland, Liberty Global gained 107,000 mobile subscriptions, driven by the launch of unlimited FMC bundles.

Virgin Media's fixed-mobile converged base expanded 80 basis points (bps) sequentially to 20.7% in the reported quarter. Management expects increasing adoption of converged bundles to drive ARPU and lower churn rate in the long haul.

Mobile ARPU (including interconnect revenues), on a reported basis, decreased 15.1% to $16.47. On a rebased basis, the figure declined 4.7%.

Further, mobile ARPU (excluding interconnect revenues), on a reported basis, decreased 8.5% to $14.23. On a rebased basis, the figure dropped 4.8%.

Operating Details

Operating income increased 1.8% from the year-ago quarter to $208.8 million.

Segment operating cash flow (operating income after adjusted for non-cash items) decreased 4.1% year over year to $1.21 billion, on a rebased basis.

U.K./Ireland operating cash flow (OCF), on a rebased basis, declined 4.1% on lower revenues, increased programming costs, higher mobile data costs and raised network taxes.

Belgium OCF, on a rebased basis, decreased 2.3% due to the Medialaan MVNO contract loss and certain regulatory headwinds.

Switzerland OCF, on a rebased basis, was down 11.9% due to a decline in residential cable subscription revenues, and higher project and marketing spend.

Finally, Continuing CEE OCF, on a rebased basis, increased 0.5% due to higher marketing spending.

Balance Sheet & Cash Flow

As of Sep 30, Liberty Global had $7.4 billion of cash and unused borrowing capacity of $2.5 billion under its credit facilities.

Total principal amount of debt and capital leases were $27.6 billion for continuing operations. Moreover, the average debt tenor is seven years, with approximately 75% not due until 2025, for continuing operations.

As of Sep 30, Liberty Global’s adjusted gross and net leverage ratios were 5.1x and 3.6x, respectively.

Cash provided by operating activities was $591.7 million, while adjusted free cash outflow from continuing operations was $70.9 million in the reported quarter.

Liberty Global successfully completed its modified Dutch auction tender offer in the reported quarter. The company repurchased nearly 100 million shares in total at a blended average price of just more than $27 per share for a combined aggregate cost of $2.7 billion.

Guidance

For 2019, rebased OCF from continuing operations (excluding Switzerland) is expected to be flat to down year over year.

Adjusted free cash flow is expected between $550 million and $600 million.

Zacks Rank & Stocks to Consider

Liberty Global currently carries a Zacks Rank #5 (Strong Sell).

Some better-ranked stocks in the broader consumer discretionary sector include Cumulus Media (CMLS - Free Report) , Entercom Communications (ETM - Free Report) and Liberty Media Corp (FWONK - Free Report) . All three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

While both Cumulus and Liberty Media are set to report quarterly results on Nov 11, Entercom is scheduled to report on Nov 8.

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