Comcast Quarterly Profit Tops Estimates on Higher Cable Bills

Comcast Corp., the largest U.S. cable-television company, reported third-quarter profit that beat analysts’ estimates as rate increases and sales of products such as high-speed Internet increased monthly bills.

Net income fell 8.2 percent to $867 million, or 31 cents a share, from a year earlier, Comcast said today in a statement. That topped the 30-cent average of analysts’ estimates compiled by Bloomberg. Sales gained 7.3 percent to $9.49 billion, compared with a projection of $9.36 billion.

Chief Executive Officer Brian Roberts is focused on getting more from existing customers by selling them additional products as basic video subscribers decline. In the quarter, 32 percent of Comcast’s video customers also bought Internet and phone services, up from 27 percent a year earlier. Higher product sales combined with rate increases boosted Comcast’s average monthly revenue per customer 10 percent to $129.75.

“We continue to manage the business for profitable growth,” Chief Financial Officer Michael Angelakis, said on a conference call with analysts. The loss in basic video customers had a “muted” effect on the company’s financials, he said.

Comcast gained 63 cents, or 3.2 percent, to $20.27 at 4 p.m. New York time in Nasdaq Stock Market trading. The stock has risen 20 percent this year.

Comcast lost 275,000 basic video customers in the quarter, as many rolled off low-cost promotions and didn’t choose to renew their services. Comcast netted 421,000 new Internet, digital video and phone subscribers combined, less than the 660,000 gain anticipated by Todd Mitchell, an analyst at Kaufman Bros. LP in New York who recommends holding the shares.

Cable Peers

“It’s going to be a weak quarter overall for the pay-TV sector and most of that is due to the economy,” Mitchell said in an interview. “Comcast should be relatively strong compared with its cable peers because it has low penetration rates in the areas it services and more room to sell advanced services.”

Comcast’s operating cash flow rose 7.6 percent to $3.58 billion in the quarter, while the free cash flow metric dropped 7.8 percent to $1.03 billion.

The company is losing basic video subscriber as so-called over-the-top providers such as online video service Hulu LLC and movie rental company Netflix Inc. grow. In the second quarter, the entire pay-TV industry lost 216,000 basic subscribers, the first such decline on record, according to research firm SNL Kagan, which tracks the industry.

No Cord-Cutting

The video losses were primarily the result of a weak economy and not so-called cord-cutting, Comcast said.

“We’re seeing fewer occupied housing units and unemployment is still a factor,” Neil Smit, president of Comcast’s cable unit, said on the conference call. “From an over-the-top impact, all of our exit surveys have seen almost no impact.”

More than 40 percent of the company’s video subscriber losses this year had Comcast’s lower-end, basic video package, bringing in less than half of the sales of the average video subscribers, CFO Angelakis said.

Comcast is also vying for video subscribers with phone companies such as Verizon Communications Inc., which competes with the cable operator in cities including Philadelphia and Washington with its FiOS service. Comcast also contends with low cost satellite-TV provider Dish Network Corp. and AT&T Inc.’s U- verse TV product.

The loss of basic video subscribers is “the only mare in the numbers,” said Matthew Harrigan, an analyst at Wunderlich Securities, in a Bloomberg Television interview. “The video business is certainly hampered by satellite competition and U- verse and FiOS.”

Comcast, based in Philadelphia, announced plans to take a 51 percent stake in General Electric Co.’s NBC Universal TV and film business in a $28 billion joint venture last December. The companies expect the merger to close by the end of the year following regulatory scrutiny.

Comcast posted net income of $944 million, or 33 cents a share, a year earlier, on sales of $8.85 billion.

To contact the reporter on this story: Kelly Riddell in Washington at Kriddell1@Bloomberg.net

To contact the editors responsible for this story: Peter Elstrom at pelstrom@bloomberg.net

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