Cablevision Falls After Discounting Leads to Cash Flow Drop

Cablevision Systems Corp. (CVC), the fifth- largest U.S. cable provider by subscribers, fell the most in two months after lower pricing led to a bigger drop in cash flow than some analysts estimated.

First-quarter adjusted operating cash flow declined 7.6 percent from a year earlier to $513.5 million, the Bethpage, New York-based company said today in a statement. David Joyce, an analyst at Miller Tabak & Co., had projected $544 million and cut his rating on the stock to neutral after the report.

The change in cash flow signals that Cablevision isn’t able to attract new users without heavy discounts, said Todd Mitchell, an analyst at Brean Murray Carret & Co. While the company added 7,000 pay-TV customers in the quarter, the number has dropped by 49,000 in the past year to 3.26 million.

“The real question is, what’s the sustainability of their pricing strategy if they stop discounting?” said Mitchell, who has a hold rating on the shares. “Can they keep up the subscriber growth?”

Cablevision fell 7.9 percent to $13.54 at the close in New York, the biggest intraday drop since Feb. 28. It has lost 4.8 percent this year.

‘Extremely Weak’

The company added 41,800 broadband subscribers and 42,400 phone customers. Increases in those two groups as well as in pay-TV users topped analysts’ estimates. Cablevision said the gains resulted from better customer service and the absence of a rate increase.

Cablevision Chief Financial Officer Gregg Seibert said Verizon Communications Inc. (VZ)’s FiOS was less aggressive in its promotions in the quarter. Cablevision has about a 40 percent overlap with FiOS services.

Chief Executive Officer James Dolan said last quarter that he would stop promotions and discounts by Cablevision.

“To generate growth, Cablevision did exactly what investors didn’t want: it was giving away the farm,” Vijay Jayant, an analyst at ISI Group, said in a note to clients. “Given today’s extremely weak financial results, we believe that investors will question how the company achieves such strong subscriber metrics.”

Package Deal

To compete with Verizon’s FiOS, Cablevision offered a package of video, voice and data service for $70 a month for two years plus a free Apple Inc. iPod Touch media player, Jayant said. That’s a large discount compared with the average of $152.53 a month the company receives per basic video customer. Cablevision ended that promotion in January, according to a spokeswoman, Kelly McAndrew.

Dolan took over running the company’s operations after former Chief Operating Officer Tom Rutledge left in December to become Charter Communications Inc. (CHTR)’s CEO. Dolan said during a conference call that he anticipates running operations through the end of 2012 “and beyond.”

Cablevision said it is looking to sell money-losing Clearview Cinemas. The cable operator attempted to find a buyer for Clearview in 2002 and couldn’t complete a deal.

Clearview operates 230 movie screens in 45 locations in the New York metropolitan area. Clearview’s business may be worth about $123 million, on the basis of comparable public-company valuations, according to Paul Sweeney, a Bloomberg Industries analyst.

“Clearview is not a strategic asset for us,” Seibert said. “We think there are others who can do more with that asset.”

Net income fell to $57.2 million, or 21 cents a share. Analysts predicted 18 cents, the average of estimates compiled by Bloomberg. Sales rose 0.2 percent to $1.66 billion, compared with the $1.67 billion analysts projected.

In the first quarter a year earlier, net income was $104.1 million, or 36 cents, before the spinoff of AMC Networks Inc. (AMCX) That unit added $35 million, or 12 cents, to the profit.

To contact the reporter on this story: Alex Sherman in New York at

To contact the editor responsible for this story: Nick Turner at

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