Fabulous 4Q for Time Warner Cable - Analyst Blog

Time Warner Cable Inc. (TWC) reported excellent fourth quarter of 2010 financial results, which exceeded the Zacks Consensus Estimates. The company witnessed growth across all revenue segments.

In synergy with a record high free cash flow and stable capital spending, Time Warner Cable increased its quarterly dividend rate by 20% to 48 cents per share. This is the second consecutive quarter where management has taken massive steps to raise shareholders value.

In the previous quarter, the company announced that the Board of Directors of Time Warner Cable has authorized a substantial share buy-back program of $4 billion. The company repurchased 0.6 million shares in the fourth quarter for $43 million.

Quarterly GAAP net income was $392 million or $1.09 per share compared with a net income of $322 million or 91 cents per share in the prior-year quarter. Fourth quarter 2010 EPS of $1.09 surpassed the Zacks Consensus Estimate of $1.01.

Revenue

Total revenue in the quarter increased 5.9% year over year to $4,801 million and exceeded the Zacks Consensus Estimate of $4,749 million. This was attributable to an increase in residential subscription revenue, commercial subscription revenue and advertising revenue.

Margins

Adjusted operating income before depreciation and amortization (OIBDA), climbed 1.6% year over year to $1,738 million. This was primarily attributed to healthy growth in the top-line, offset by higher video programming, marketing and voice costs.

Video programming expense was $1.1 billion (up 7.2% year over year), employee expenses were $970 million (up 3.9% year over year), marketing cost was $166 million (up 7.1% year over year) and voice cost was $172 million (up 5.5% year over year). GAAP operating income grew 11.6% year over year to $994 million,driven byhigher adjusted OIBDA, partially offset by higher depreciation expense.

Cash Flow

Operating cash flow for fiscal 2010 was $5,218 million compared with $5,179 million in the year-ago period. Free cash flow (cash flow from operations less capital expenditure together with principal payment for capital lease and intangible assets) for the same period was $2,288 million compared with $1,948 million in the prior-year period.

Balance Sheet

At the end of fiscal 2010, Time Warner Cable had $3,047 million of cash & marketable securities compared with $1,048 million at the end of fiscal 2009. Total debt, at the end of fiscal 2010 was $23,121 million compared with $22,331 million at the end of fiscal 2009. At the end of fiscal 2010, debt-to-capitalization ratio was 0.71 compared with 0.72 at the end of fiscal 2009.

Subscription Segment

Total Subscription revenue in the fourth quarter, increased 4.6% year over year to $4,532 million, attributable to a 3.5% increase in residential subscription revenues and a 23.0% increase in commercial subscription revenues.

Within this segment, Video revenue was $2,731 million (up 1.6% year over year), High-speed Data revenue was $1,280 million (up 10.5% year over year) and Voice revenue was $521 million (up 7.6% year over year).

Advertising Segment

Advertising revenue increased 33.8% year over year to $269 million. Political advertisements was the prime revenue driver within this segment.

Subscriber Statistics

During the fourth quarter of 2010, Time Warner Cable lost 63,000 Revenue Generating Units but also witnessed a net addition of 25,000 Primary Services Unit. At the end of the reported quarter, Basic Video subscribers were 12.422 million, down 141,000 sequentially. Residential High-speed Data subscribers were 9.469 million, up 83,000 sequentially.

Commercial High-speed Data subscribers were 0.334 million, up 11,000 sequentially. Residential Digital Phone subscribers were 4.385 million, up 61,000 sequentially. Commercial Digital Phone subscribers were 0.111 million, up 11,000 sequentially.

During the same quarter, Time Warner Cable added 72,000 Triple play subscribers to its existing 3.680 million but lost 39,000 Double play subscribers from its subscriber base of 4.866 million. The company also lost 111,000 Single play subscribers from its 5.950 million customers.

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 more on superior content distribution and delivery.

We maintain our long-term Neutral recommendation for Time Warner Cable. Currently, it has a Zacks #3 Rank on the stock, implying a short-term Hold rating.

 
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