July 30 (Bloomberg) -- Comcast Corp., the largest U.S. cable-television operator, said second-quarter profit rose 7.5 percent as it won more telephone and Internet customers. The stock gained the most in three months.

Net income increased to $632 million, or 21 cents a share, from $588 million, or 19 cents, a year earlier, Philadelphia- based Comcast said today in a statement. Free cash flow, or funds available after capital spending, more than tripled to $1.16 billion, topping analysts' estimates.

The rise in free cash flow resulted from reduced capital spending and more cash from operations. That means the company has more to spend on dividends and share repurchases, said Sanford C. Bernstein & Co. analyst Craig Moffett in New York. Comcast began a 6.25-cent quarterly dividend in April.

``The free cash flow result is spectacular,'' said Moffett, who expects the stock to outperform the market and doesn't own it. ``Comcast's capital spending was very restrained, and that leaves them ample headroom in the second half to meet or beat their free cash flow guidance for the full year.''

Comcast added 555,000 digital phone customers and 278,000 Web-access customers as AT&T Inc. and Verizon Communications Inc. lost residential phone users. The cable provider is competing with the traditional phone companies with bundled products that include phone, TV and high-speed Internet service.

Some investors were concerned the phone companies' results presaged a poor subscriber report from Comcast, Goldman Sachs Group Inc. analyst Ingrid Chung said in an interview.

Internet Additions

``Comcast proved them wrong,'' said Chung, who doesn't own shares and rates Comcast ``buy.'' In a note she called Comcast's Internet additions ``a very strong result.''

Comcast rose 89 cents, or 4.6 percent, to $20.07 at 4 p.m. New York time in Nasdaq Stock Market trading. The shares have gained 9.9 percent this year.

Revenue gained 11 percent to $8.55 billion in the quarter, compared with the $8.57 billion average of 14 analysts estimates compiled by Bloomberg. Excluding one-time items, profit totaled 21 cents, short of the 23-cent average of 17 estimates.

Comcast cut capital spending 19 percent to $1.3 billion to help beat analysts' projections for cash flow. Free cash flow surpassed estimates of $618 million by Moffett's $618 million and $487 million by Chung.

Growth in digital phone and Web service slowed from a year earlier. Even so, Comcast ``certainly gained market share in this quarter,'' Edward Jones analyst Robin Diedrich said in an interview with Bloomberg Television. Diedrich, in Des Peres, Missouri, rates Comcast ``hold.''

More Marketing

Comcast reiterated its forecast for growth of 8 percent to 10 percent in revenue and operating cash flow for the year. Capital spending will fall to about 18 percent of sales and free cash flow will increase at least 20 percent from the $2.3 billion reported last year.

Comcast's marketing costs have risen 15 percent so far this year as it attracts new customers, Chief Financial Officer Michael Angelakis said on a conference call. Sales to businesses, an area of focus for the company, rose 38 percent, Chief Operating Officer Stephen Burke said.

Chief Executive Brian Roberts on Feb. 14 said the company, with its shares down 35 percent in 2007, would curb capital spending, increase free cash flow, repurchase shares and pay a dividend. The shares rose 8 percent that day.

Comcast added 320,000 digital cable customers, compared with a gain of 823,000 a year earlier, when the company accelerated deployment of digital cable boxes to comply with a federal mandate.

The company lost 138,000 basic video customers. The second quarter is traditionally slow for cable, in part because college students cancel subscriptions. Cable companies seeking to retain basic video customers are facing ``headwinds'' from the slow economy and poor housing market, Moffett said.

Comcast said its average revenue per customer rose 8.6 percent to $109.66 as it sold packages combining its services.

To contact the reporter on this story: Todd Shields in Washington at tshields3@bloomberg.net

Last Updated: July 30, 2008 16:23 EDT