Comcast Boosts Profit, Mollifies Shareholders

Feb 14, 2008  •  Post A Comment

Addressing complaints about a weak stock price, Comcast said it would be turning over some of the money it takes in from subscribers to its shareholders by giving them a dividend and buying back stock.
The nation’s largest cable company also on Thursday announced a 54% increase in net income during the first quarter on a 14% increase in revenue. Comcast said it expects revenue and cash flow to rise 8% to 10% in 2008, and for capital expenditures to decline as a percentage of revenue..
Comcast declared a 6.25 cents per share quarterly dividend beginning in April and said it would spend $6.9 billion buying back stock before the end of 2009.
“Taken together, we believe these actions underscore our strong confidence in the cash flow generation of our businesses and our continued commitment to returning capital and building shareholder value,” said Brian Roberts, CEO of Comcast Corp.
The moves helped boost Comcast’s stock price to $19.20 a share, up 8% from Wednesday’s close.
Comcast said its fourth quarter net income for 2007 was $602 million, or 20 cents a share, up 54% from last year. The company said that after adjusting last year’s fourth quarter for lower gains on transactions with Adelphia Communications and Time Warner, net income was up 33%.
Revenue for the quarter rose to just over $8 billion.
For the year, net income hit $2.6 billion, up 2% and earnings per share were 83 cents, up 5%. Adjusting for a gain after dissolving a cable partnership in Texas and Kansas City, net income rose 18% to $2.3 billion. Revenue for the year was $30 billion, up 24%
Analyst had been expecting a dividend so that shareholders could get some of the cash Comcast has been generating.
The company’s stock dropped in 2007 and the company has been criticized by some shareholders, including Chieftain Capital Management, which month said it wanted Mr. Roberts removed as CEO.
Chieftain had also complained about an arrangement under which company founder Ralph Roberts, Brian Roberts’ father, would continue to be paid his salary for five year after his death. On Wednesday, Comcast said that arrangement had been changed. Instead of the $1.87 million salary, Ralph Roberts will receive $1 a year and won’t be eligible for bonuses or stock options.
Analysts said the dividend was somewhat larger than expected.
“Today’s announcements go a long way towards resolving the fundamental question that has hung over Comcast’s shares … What will they do with the cash? The answer, for now, is unambiguous. It will be-at long last-returned to shareholders,” said Craig Moffett, VP and senior analyst at Sanford C. Bernstein.
The dividend and pre-purchases signals that acquisitions are off the table for Comcast for the next couple years, Mr. Moffett said.
Analysts called the earnings report mixed.
“Signs of a weakening economy are clear in the results,” Mr. Moffett said. “Basic subscriber numbers have been hurt by weakness in the housing market (fewer new pay TV subscriptions are being minted every quarter). And local advertising remains extremely soft, reflecting its disproportionate reliance on sectors such as automotive, retail, and financial services.”
Spencer Wang, analyst at Bear, Stearns, also called the earnings report mixed. While revenue and earnings before interest, taxes, depreciation and amortization were better than expected, some of the underlying numbers reflecting subscriber growth were lower than expectations.
Mr. Wang also said that Comcast’s guidance about its expectations for 2008 was less detailed than in years past. The 8 to 10% range for EBITDA growth was in line to slightly below the current 9% revenue growth and 10% EBITDA growth forecast in 2008.
“We maintain our outperform rating on Comcast,” Mr. Wang said despite the company’s more modest growth outlook. “In our view, strong free cash flow guidance and tangible evidence of [Comcast] returning to shareholders should outweigh this issue, particularly at current valuation levels.”

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