DIRECTV Meets Zacks Estimates - Analyst Blog

DIRECTV (DTV) today declared strong financial results for its third quarter of 2010. This solid result was the combined result of a double-digit revenue growth, significant margin expansion, and better than expected net customer addition.

Total revenue of $6,025 million in the quarter was an improvement of 10% year over year and well above the Zacks Consensus Estimate of $5,952 million. This was primarily due to massive subscriber growth in both U.S. and Latin American regions, as well as average monthly revenue per subscriber (ARPU) growth of 4.3% at DIRECTV U.S. and $64 million of net revenue generated by DIRECTV Sports Networks, which was acquired as part of the transaction with Liberty Media Corporation in November 2009.

Quarterly GAAP net income was $479 million or 55 cents per share compared with a net income of $66 million or 37 cents per share in the year-ago quarter. EPS of 55 cents was exactly in line with the Zacks Consensus Estimate.

Quarterly operating profit before depreciation & amortization (OPBDA) was $1,484 million, up 10% year over year. Operating profit was $868 million in the quarter, up 27% year over year, primarily due to gross profit associated with higher revenues, partially offset by an increase in subscriber acquisition costs.

Also in the quarter, DIRECTV U.S. completed a $3.0 billion financing transaction consisting of $750 million of 3.125% senior notes due 2016, $1.0 billion of 4.6% senior notes due 2021 and $1.25 billion of 6.0% senior notes due 2040. In addition, the company repaid the remaining $1.2 billion principal balance on its senior secured credit facility and repurchased $1.37 billion of common stock.

During the first nine months of 2010, DIRECTV generated $3,825 million of cash from operations compared to $3,198 million in the year-ago period. Free cash flow (cash flow from operations less capital expenditures) in the same period was $2,178 million compared to $1,690 million in the year-ago period.

At the end of the third quarter of 2010, DIRECTV had $2,988 million of cash & cash equivalents and $10,471 million of outstanding debt on its balance sheet compared to $2,605 million of cash & cash equivalents and $8,010 million of outstanding debt at the end of fiscal 2009. At the end of the reported quarter , debt-to-capitalization ratio was 0.94 compared with 0.69 at the end of fiscal 2009.

DIRECTV U.S. Segment

Quarterly total revenue was $5,031 million, up 7% year over year, primarily due to strong ARPU growth and the larger subscriber base. Quarterly ARPU increased 4.3% to $88.98. Quarterly operating profit before depreciation & amortization increased 1.1% to $1,192 million and operating profit increased 17.8% to $720 million.

Average monthly subscriber churn rate in the reported quarter was 1.70%, an improvement over 1.72% in the prior-year quarter. Net subscriber addition was 174,000 compared with 136,000 in the year-ago quarter. As of September 30, 2010, DIRECTV U.S. had 18.93 million subscribers, up 2.7% year over year.

DIRECTV Latin America Segment

Quarterly total revenue was $930 million, up 22% year over yeardue to continued strong subscriber growth including a 27% increase in third quarter net additions to 206,000. Quarterly ARPU decreased 2.7% to $58.20due to currency devaluations, mainly in Venezuela. Operating profit before depreciation & amortization increased 57% to $313 million and operating profit increased 67% to $172 million.

Average monthly subscriber churn rate in the reported quarter was 2.0% compared to 1.75% in the prior-year quarter. Gross additions in the quarter increased 36% year over year largely due to continued strong demand for HD, DVR and pre-paid services, as well as targeted customer promotions aimed at the middle-market segment resulting in strong growth across the region, most notably in Brazil, Argentina and Ecuador. As of September 30, 2010, DIRECTV Latin America had approximately 5.430 million subscribers, up 25.4% year over year.

Recommendation

We maintain our long-term Neutral recommendation for DIRECTV. Currently it is a short-term Zacks #3 Rank (Hold) stock.