With growth lagging in the cable business, the industry's attractive cash flows from its consumer subscription business have become a focus for investors. As a result, Time Warner Cable--the only major, publicly traded cable operator that isn't family-controlled--has shone, with its stock gaining more than 50% since it started paying a quarterly dividend a year ago, coupled with a $4 billion share-repurchasing plan unveiled in November.
While the company lost customers in the quarter, with declines coming primarily from less-affluent and video-only customers, its total subscription revenue grew 5% due to price increases and growth in higher-end subscriptions. Meanwhile, its operating income rose 12% and its free cash flow was up 58%, capping a year in which its free cash flow rose 19% to $2.3 billion.
On a conference call with analysts following the release, Time Warner Cable Chief Operating Officer Robert Marcus said the company expects double-digit growth in operating income and free cash flow in 2011.
The company's chief executive, Glenn Britt, said raising its dividend is part of the company's effort to "be the open, transparent, shareholder-friendly company that our shareholders expect." Many firms are taking measures to return capital to shareholders as corporate cash piles sit near record levels.
Shares of Time Warner Cable were trading up 1% to $68.78 in early Thursday trading.
Sanford C. Bernstein & Co. analyst Craig Moffett noted that the company's annual dividend of $1.92 per share is only slightly higher than its quarterly free cash flow of $1.82 per share, arguing that the company has plenty of leeway to return more cash to shareholders. So far, it has spent roughly $750 million on buybacks since it began repurchasing its shares late last year.
Strategically, Time Warner Cable faces headwinds from rising competition and programming costs, waning growth prospects in the U.S. pay-television market and continued weakness in employment and housing in the U.S. economy.
Also, the rise of online video service alternatives from the likes of Netflix Inc. (NFLX) and Hulu LLC has investors on edge about the financial future of the traditional pay-TV industry.
Time Warner Cable and other cable companies have acknowledged the risks posed by online video, but they have said there's little sign of consumers replacing pay-TV service with broadband-only subscriptions and concerns about such a phenomenon gaining traction are overblown.
On Thursday, Britt said online video subscription services may have better user interfaces than traditional pay-TV services, but he said that they depend on cable's broadband infrastructure and questioned their long-term prospects for delivering value to consumers. He also said that cable set-top boxes could be replaced in the future by connected mobile devices.
Time Warner Cable lost 78,000 customers in the quarter, while its video subscriptions declined by 141,000, reflecting rising competition from satellite operators and telecommunications companies. It added 94,000 broadband subscribers and 72,000 digital-phone subscribers, while so-called triple-play subscribers--which get video, broadband and phone service--increased by 72,000.
The company reported a fourth-quarter profit of $392 million, or $1.09 a share, up from $322 million, or 91 cents a share, a year earlier. Excluding the tax gain and other effects, per-share earnings climbed to 99 cents from 93 cents as revenue rose 5.9% to $4.8 billion.
Analysts had expected earnings of $1 a share on revenue of $4.75 billion.
-By Nat Worden, Dow Jones Newswires; 212-416-2472;
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(END) Dow Jones Newswires
January 27, 2011 10:26 ET (15:26 GMT)
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