Time Warner Cable Profit Jumps on Higher Subscriptions -- Update

By Michael Calia and Shalini Ramachandran 

Time Warner Cable Inc. said its first-quarter profit jumped 19% as the cable operator logged growth in high-speed Internet and business services revenue, while reducing its rate of quarterly video subscriber losses for the first time in two years.

The earnings result is the first since the number two cable operator agreed to be bought by Comcast Corp., the biggest cable operator, for $45 billion in stock, after spurning several offers from smaller peer Charter Communications Inc. over the past year. The Comcast deal has triggered regulatory debate and criticism from other media companies, such as video streaming service Netflix Inc., although Comcast has argued the merger would better enable it to compete with the likes of Google Inc., Amazon.com Inc. and Verizon Communications Inc.

On a conference call with analysts, Time Warner Cable Chief Executive Rob Marcus said integration planning with Comcast is going "better than expected" and TWC remains "very excited" about the deal.

Addressing a recent drop in Comcast's stock price that has reduced the value of its all-stock offer, Mr. Marcus said TWC assesses value "on a long-term basis" as opposed to looking at prices "at any given moment in time." He said he continues to believe the Comcast deal is "the best way to maximize value for shareholders," and that TWC shareholders will see benefits through the Comcast stock they receive. "We don't get terribly hung up by the fact that share prices move around from day to day," Mr. Marcus said.

Mr. Marcus said TWC's management has "not taken our eye of the ball as a result of the announcement," noting the company saw the best subscriber results this quarter "in the last five years." A big part of the reason TWC came under takeover pressure last year was its laggard operating results compared with its rivals.

Time Warner Cable lost 34,000 residential video subscribers during the first quarter compared with 119,000 a year ago, the smallest such drop in five years, the company said. It gained 269,000 residential broadband subscribers compared with 131,000 a year earlier--its most since the first quarter of 2008, according to the company. Residential voice subscribers grew by 107,000, compared with a loss of 35,000 a year ago.

However, total residential revenues declined about 1%, driven by decreases in video and voice revenues. Video revenues dropped 6.6% and voice revenues fell 4.4%, offsetting growth in broadband revenues of nearly 11% on rate increases.

As a result, analysts remained cautious about the turnaround.

Craig Moffett, analyst at MoffettNathanson LLC, said the better subscriber results "weren't enough to offset this weakness" in revenue metrics. Vijay Jayant, analyst at ISI Group LLC, suggested TWC took in lower average revenues per user due to a "high degree of bundling promotions" in the quarter that drove subscribers to take cheaper packages. While the revenues could improve as TWC rolls out rate increases next quarter, it could put pressure on the subscriber momentum.

Business services revenue rose 24% to $668 million.

Overall, Time Warner Cable posted a profit of $479 million, or $1.70 a share, up from $401 million, or $1.34 a share, a year earlier. Excluding merger-related restructuring costs, per-share earnings rose to $1.78 from $1.41.

Revenue rose 2% to $5.58 billion.

Analysts surveyed by Thomson Reuters had projected earnings of $1.67 a share and revenue of $5.64 billion.

Write to Michael Calia at [e-mail] and Shalini Ramachandran at [e-mail]

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