DIRECTV Q2 Earnings Beat Estimates on Strong Subscriber Gain

The leading U.S satellite TV operator, DIRECTV (DTV) posted second-quarter 2014 financial results wherein both its top and bottom line surpassed the Zacks Consensus Estimate. Higher ARPU and strong margin expansion in the U.S. coupled with strong subscriber addition in the Latin American region may continue to boost business moving ahead.

Total revenue came in at $8,109 million, up 5.3% year over year and also above the Zacks Consensus Estimate of $7,700 million. Quarterly GAAP net income was $806 million or $1.59 per share compared with $660 million or $1.18 per share in the year-ago quarter. Moreover, earnings per share of $1.59 breezed past the Zacks Consensus Estimate of $1.52.

Quarterly adjusted operating profit before depreciation & amortization (OPBDA) was $2,156 million, up 3.6% year over year. Adjusted operating profit came in at $1,427 million, up 5.7% from the year-ago quarter.

DIRECTV exited second-quarter 2014 with $1,474 million of cash from operations compared with $1,374 million in the prior-year period. At the end of the reported quarter, DIRECTV had $2,290 million in cash & cash equivalents and $18,284 million of outstanding debt on its balance sheet compared with $2,180 million and $18,284 million, respectively, at the end of 2013.

DIRECTV U.S. Segment

Revenues from this segment totaled $6,272 million, up 5.5% year over year. Quarterly ARPU was $103.3 compared with $98.73 in the year-ago quarter. Quarterly operating profit before depreciation & amortization rose 5.9% to $1,748 million. Operating profit improved 6.3% year over year to $1,319 million.

Average monthly subscriber churn rate in the reported quarter was 1.55% as compared with 1.53% in the year-ago quarter. Quarterly net subscriber losses were 34,000 compared with 84,000 in the year-ago quarter. On Jun 30, 2014, the U.S. segment had 20.23 million subscribers, up 1% on an annualized basis.

In the U.S., the pay-TV operators are facing intense competition from large telecom operators like AT&T, Inc. (T) and Verizon Communications (VZ). Moreover, availability of low-cost video streaming companies like Netflix Inc. (NFLX) and Hulu will further increase customer churn moving ahead.

DIRECTV Latin America Segment

This segment posted revenues of $1,789 million, up 6.1% year over year. Quarterly ARPU was $48.88 as against $51.13 in the prior-year quarter. Quarterly operating profit before depreciation & amortization fell 3.7% to $438 million while operating profit decreased 2.1% to $142 million.

Average monthly subscriber churn rate in the reported quarter was 2.1% versus 3.1% in the prior-year quarter. Quarterly net subscriber addition was 543,000 against 165,000 in the year-ago quarter. As of Jun 30, 2014, DIRECTV’s Latin America segment had approximately 12.472 million subscribers, up 12.6% year over year.

DIRECTV currently has a Zacks Rank #3 (Hold).