Time Warner Cable Inc. (TWC) reported solid first-quarter 2011 financial results, which exceeded the Zacks Consensus Estimates. Both the Commercial and Residential subscription revenue grew simultaneously with the Advertising revenue.
EPS
Quarterly GAAP net income was $325 million or 93 cents per share compared with a net income of $214 million or 60 cents per share in the prior-year quarter. First-quarter 2011 adjusted (excluding special items) EPS of $1.01 cents was higher than the Zacks Consensus Estimate of 99 cents.
Revenue
Total quarterly revenue surged 5% year over year to $4,827 million and exceeded the Zacks Consensus Estimate of $4,780 million. This was attributable to an increase in residential subscription revenue, commercial subscription revenue, and advertising revenue.
Margins
Quarterly adjusted operating income before depreciation and amortization (OIBDA) climbed 3.6% year over year to $1,731 million. This was primarily due to healthy growth in the top-line offset by higher video programming, marketing and personnel costs.
Video programming expense was $1.1 billion, (up 2.6% year over year) and employee expenses were $1 billion (up 5.9% year over year). GAAP operating income grew 14.7% year over year to $975 million,driven byhigher adjusted OIBDA and lower amortization expenses.
Return on Capital
During the first quarter of 2011, Time Warner Cable repurchased 12 million of its common stock for a total consideration of $829 million. In the reported quarter, the company also paid $167 million as dividend.
Cash Flow
Operating cash flow in the first quarter of 2011was $1,570 million compared with $1,386 million in the prior-year quarter. Free cash flow (cash flow from operations less capital expenditure together and cash paid for intangible assets and other) in the reported quarter was $927 million compared with $652 million in the year-ago quarter.
Balance Sheet
At the end of the first quarter of 2011, Time Warner Cable had $3,033 million of cash & marketable securities compared with $3,047 million at the end of fiscal 2010. Total debt, at the end of the reported quarter was $23,077 million compared with $22,121 million at the end of fiscal 2010. At the end of the first quarter of 2011, debt-to-capitalization ratio was 0.73 compared with 0.71 at the end of fiscal 2010.
Subscription Segment
Total Subscription revenue in the first quarter has increased 4.6% year over year to $4,630 million, attributable to an increase of 3.5% in residential subscription revenues and a rise of 23.2% in commercial subscription revenues. Within this segment, Video revenue was $2,767 million (up 1% year over year), High-speed Data revenue was $1,328 million (up 11.3% year over year), and Voice revenue was $535 million (up 8.5% year over year).
Advertising Segment
Advertising revenue increased 13.9% year over year to $197 million. Automotive and Media advertisements were the prime contributor of revenue within this segment.
Subscriber Statistics
During the first quarter of 2011, Time Warner Cable gained 26,000 Revenue Generating Units, including a net addition of 208,000 Primary Services Unit. At the end of the reported quarter, Residential Video subscribers were 12.191 million, down 66,000 sequentially. Commercial Video subscribers were 166,000, up 1,000 sequentially.
Residential High-speed Data subscribers were 9.646 million, up 177,000 sequentially. Commercial High-speed Data subscribers were 346,000, up 12,000 sequentially. Residential Digital Phone subscribers were 4.457 million, up 72,000 sequentially. Commercial Digital Phone subscribers were 123,000, up 12,000 sequentially.
During the same quarter, Time Warner Cable added 83,000 Triple play subscribers to 3.763 million, added 17,000 Double play subscribers to 4.883 million, and lost 74,000 Single play subscribers to 5.876 million.
Recommendation
After Comcast Corp. (CMCSA), Time Warner Cable is the second largest cable MSO in the U.S. The company has decided to remain as a pure-play cable operator concentrating on superior content distribution and delivery. We maintain our long-term Neutral recommendation on Time Warner Cable. Currently, it holds a short-term Zacks #3 Rank (Hold) on the stock.
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