Dish Profit Falls as Revenue Misses Estimates, Costs Rise

May 7 (Bloomberg) - Bloomberg's Sheila Dharmarajan reports that Dish Network posted first-quarter profit that topped analysts' estimates after attracting more subscribers. She speaks on Bloomberg Television's "InBusiness." (Source: Bloomberg)

Dish Network Corp. (DISH), the second-largest U.S. satellite-television provider, reported a 34 percent drop in profit after revenue per customer missed some analysts’ estimates and programming costs increased.

First-quarter net income fell to $360.3 million, or 80 cents a share, Englewood, Colorado-based Dish said today in a statement. Average monthly revenue per user rose 1.8 percent from a year earlier to $76.71. Analysts projected $77.31 on average, Sanford C. Bernstein & Co.’s Craig Moffett said.

The “anemic” gain means Dish’s margins are shrinking while costs to buy programming rise, New York-based Moffett said. While customer gains exceeded analysts’ predictions, subscriber-related expenses rose 4.1 percent and sales of $3.58 billion missed the $3.62 billion average analyst estimate.

“Strong subscriber additions, which were led by better- than-expected churn, will likely be overshadowed by soft customer revenue,” said Michael McCormack, an analyst at Nomura Securities International Inc. in New York.

Dish fell 1.2 percent to $30.93 at the New York close. The shares have risen 8.6 percent this year.

Dish added a net 104,000 customers in the quarter, more than the 54,000 average of 11 estimates compiled by Bloomberg. The company’s decision not to raise monthly rates this year resulted in lower customer defections, Chief Financial Officer Robert Olson said on a conference call.

Shrinking Margins

The customer gains may not be big enough for Dish to avoid narrower profit margins in the second and third quarters, which are typically weaker for subscriber additions, Moffett said. First-quarter net income totaled $549.4 million, or $1.22 a share, a year earlier.

Dish also plans to sell $1.5 billion of debt split between five-year notes that yield about 4.75 percent and 10-year bonds at about 5.75 percent to 5.875 percent, according to a person familiar with the offering, who declined to be identified because terms aren’t set.

Dish is preparing for a trial over an alleged breach of contract with AMC Networks Inc., which is seeking $2.5 billion in damages from the company. Dish Chairman Charlie Ergen said on the call that he was prepared to drop AMC Networks’ cable channels from Dish’s offerings because the programming is available on Apple Inc. (AAPL)’s iTunes and Netflix Inc. (NFLX), and thus is “devalued.” The channels include AMC, WE tv, IFC and Sundance Channel.

Not There Yet

AMC Networks said May 4 that the move was a response to a court ruling last month denying Dish the right to appeal an outstanding lawsuit.

While Dish’s Ergen said it may still make sense to renew AMC at the right price, “we just don’t think that’s where we are today.”

Ergen reiterated Dish’s commitment to transition from a TV provider to a wireless company. The Federal Communications Commission will determine whether Dish is able to use satellite spectrum to provide land-based voice and data service, a process Ergen said he hoped would be “done by the end of the summer.” The FCC can make a ruling any day after June 1, Ergen said.

Dish is more likely to forge a partnership with an existing wireless company than sell the spectrum or build a network itself, Ergen said. The company is “talking to everybody” to best position itself, he said.

“I think you can expect us to be conservative in how we enter the wireless business,” Ergen said. “But that doesn’t mean that you don’t go out and do things.”

To contact the reporter on this story: Alex Sherman in New York at asherman6@bloomberg.net

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net

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