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Outlook a mixed bag for cable ops

May 6, 2002  •  Post A Comment

Leading cable operators who are still uncomfortably straddling their $22 billion system upgrades and not yet mining high-margin returns on slow-to-market new digital services say the second half of 2002 is looking better than expected.
That has been the word from several of the nation’s top cable operators in quarterly earnings calls the past two weeks, even as they report financial results that have been strained by companies’ having to make do while in that gray space.
Comcast Corp., Charter Communications and Cox Communications reported that new digital subscriber growth and the rollout of new services are better than expected going into the second half of the year. Nearly all major cable operators are standing by their original, guarded 2002 earnings and revenue forecasts.
But there are several persistent and potentially negative factors dogging cable companies and their stocks: the general slowdown in digital subscriber growth that in some cases showed up as a steep decline last quarter as well as the high leverage many cable operators are wrestling with and working to refinance.
For instance, Comcast Corp. last week quelled liquidity questions involving its pending $72 billion acquisition of AT&T Broadband by announcing a new $12.8 billion bank credit line that along with other financing will help fund the transaction and still leave the new company with $3 billion of available credit and more than $31 billion in debt.
By comparison, Cablevision Systems Corp. officials last week defended their company’s financial solvency, saying they are considering ways to avoid a $1 billion funding gap in 2003 that has become a paramount concern for investors. “I want to assure you that we are committed to living within our means,” Cablevision President and CEO James Dolan said.
Cash flow and current credit lines will cover Cablevision’s capital and financing requirements in 2002. Cablevision last Thursday reported a mostly investment-related $250 million loss compared with a year-earlier profit of $1.13 billion, boosted by asset sales on a 5 percent rise in revenues to $1.1 billion. Cablevision stock fell 4 percent to almost $25 a share on the news.
Charter Communications said it lost $174.2 million, or 59 cents a share, in the first quarter compared with a $280.7 million loss a year ago, or $1.20 a share, impacted by a goodwill charge. Operating cash flow rose 10 percent to $449 million on a 13 percent rise in revenues to $1.08 billion. First-quarter advertising revenues declined only 2 percent to $60 million. Analysts said Charter may tap equity markets to pay off some of its $17 billion in long-term debt.
Comcast reported a $89 million net loss, or 9 cents a share, compared with year-earlier earnings of $1 billion, or $1.04 per share, boosted by extraordinary items. First-quarter operating cash flow rose 28 percent to $808 million on a 20 percent rise in revenues to $2.7 billion. The company has more than $11 billion in debt.
Comcast’s strong performance offers stark contrast to AT&T Broadband’s weak first-quarter report, punctuated by the loss of 1.3 percent of its cable subscribers.