Charter Communications Inc. CHTR reported second-quarter 2018 adjusted earnings of $1.15 per share that beat the Zacks Consensus Estimate by 20 cents and surged 121.2% from the year-ago quarter.
Revenues increased 4.8% year over year to $10.85 billion that beat the Zacks Consensus Estimate of $10.84 billion.
Segment Details
Residential revenues (79.8% of revenues) came in at $8.66 billion, up 4.6% from the year-ago quarter. Video and Internet revenues increased 5.9% and 7.3%, respectively. Voice revenues plunged 18.3% year over year.
Management stated that launch of Spectrum pricing and packaging in legacy Time Warner Cable (“TWC”) and legacy Bright House footprints drove top-line growth.
Commercial revenues (14.2% of revenues) increased 4.3% year over year to $1.54 billion. Small and medium business (SMB) and Enterprise revenues increased 2.8% and 6.6%, respectively.
Charter Communications, Inc. Price, Consensus and EPS Surprise
Charter Communications, Inc. Price, Consensus and EPS Surprise | Charter Communications, Inc. Quote
Advertising sales (3.9% of revenues) climbed 12.1% year over year to $427 million, primarily driven by higher political revenues. Other revenues (2% of revenues) came in at $221 million, up 1.8% year over year.
Subscriber Statistics
In the reported quarter, total residential and SMB customer relationships increased 196K as compared with 213K in the year-ago quarter.
As of Jun 30, 2018, Charter had 27.6 million total customer relationships and 49.6 million total Primary Service Units (PSUs) as compared with 27.5 million total customer relationships and 52.5 million total PSUs as of Mar 31, 2018.
Total residential and SMB video, Internet and voice customers increased by 202K. Charter added 218K net Internet subscribers, but lost 57K and 8K video and voice subscribers, respectively.
Moreover, Monthly Residential Revenue per Residential Customer decreased 7% year over year to $176.96.
Higher Internet Speed Attracts Subscribers
As of Jun 30, Charter had 23.1 million residential Internet customers. More than 80% of these residential Internet customers are subscribed to tiers that provided 60 Mbps or more speed. Further, more than 60% have subscribed to Internet tiers that provided 100 Mbps or more speed. Currently, 100 Mbps is the slowest speed offered to new Internet customers in 99% of Charter's footprint.
During the quarter, the company further expanded the availability of its Spectrum Internet Gig service (940 Mbps) to a number of new markets. The service, which uses DOCSIS 3.1 technology, now covers approximately 60% of its footprint.
Charter expects to launch its Spectrum Internet Gig service to nearly its entire footprint by the end of 2018. Additionally, the company is doubling minimum Internet speeds to 200 Mbps in a number of markets at no additional cost to new and existing Spectrum Internet customers.
All-Digital Initiative Continues
At the end of the second quarter, 91% of Charter's footprint was all-digital. The company continued with its all-digital efforts in almost 6% of legacy TWC's footprint and 50% of legacy Bright House's presence.
All-digital initiative allows Charter to offer more advanced products and services, and provides residential customers with two-way digital set-top boxes, which offer better video picture quality, an interactive programming guide and video on demand on all TV outlets in residences.
Charter launched its Spectrum Mobile service on Jun 30.
Operating Details
Total operating costs and expenses increased 4.5% from the year-ago quarter to $6.80 billion. As percentage of revenues, total operating costs and expenses declined 20 basis points (bps) to 62.7%.
Programming costs increased 5.8% year over year to $2.80 billion, reflecting contractual programming increases, renewals and a higher number of expanded basic video customers on a year-over-year basis.
Regulatory, connectivity and produced content costs were up 5.3% from the year-ago quarter to $560 million, primarily due to the company's adoption of FASB's ASU 2014-09 standard as of Jan 1, 2018.
Both costs to service customers and marketing costs increased 1.2% year over year to $1.78 billion and $769 million, respectively. Moreover, mobile costs were $33 million in the quarter.
Adjusted EBITDA increased 5.3% from the year-ago quarter to $4.05 billion. Adjusted EBITDA margin expanded 20 bps on a year-over-year basis to 37.3%.
Balance Sheet & Cash Flow
As of Jun 30, 2018, cash and cash equivalents were $773 million as compared with $576 million as of Mar 31, 2018.
In second-quarter 2018, net cash flow from operating activities totaled $3.1 billion, as compared with $2.7 billion reported in the previous quarter.
Capital expenditures totaled $2.4 billion as compared with $2.2 billion in the year-ago quarter, primarily driven by in-year timing differences and its all-digital initiative.
Charter generated $804 million of consolidated free cash flow this quarter, including $116 million of investment in mobile.
The company bought back almost 6.4 million shares for approximately $1.9 billion.
Charter also finalized its mobile joint venture with Comcast CMCSA, with a portion of the funding representing an equity investment on the formers balance sheet. Moreover, a portion representing a prepayment of software development and related services for the mobile back-office platform will also be accounted for in the balance sheet.
Guidance
For 2018, Charter expects cable capital expenditures, as a percentage of cable revenues, to be similar or slightly lower than 2017.
For 2019, cable capital expenditure is expected to decrease in absolute dollar terms and in terms of capital intensity.
Zacks Rank & Stocks to Consider
Currently, Charter Communications carries a Zacks Rank #3 (Hold).
AMC Networks AMCX and Entercom Communications ETM are stocks worth considering in the same sector. While Entercom has a Zacks Rank #2 (Buy), AMC sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
AMC is slated to report results on Aug 2, while Entercom on Aug 8.
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