Time Warner Cable Inc. (TWC), the second-largest U.S. cable provider, rose the most in a month after its second-quarter profit topped estimates and the company said earnings growth would be “on the high end” of its forecast.
Net income rose 6.4 percent to $481 million, or $1.64 a share, from $452 million, or $1.43, a year earlier, the New York-based company said today in a statement. Excluding one-time costs, earnings per share were $1.69, beating the $1.65 average analyst estimate compiled by Bloomberg.
Time Warner Cable has been cutting promotions and discounts as part of a plan to emphasize profit over subscriber growth. The company added just 8,000 residential high-speed Internet subscribers, its lowest quarterly total in at least six years. Adjusted earnings per share growth, meanwhile, will be on the high end of its full-year forecast of 10 percent to 15 percent, Time Warner Cable said.
“The financials were good,” Jaison Blair, an analyst at Telsey Advisory Group, said in an interview. “I think investors are looking through the subscriber trends now and thinking about future M&A.”
Time Warner Cable rose 3.2 percent to $117.68 at the close in New York, marking the biggest one-day gain since June 28. The stock has climbed 21 percent this year.
Even so, Time Warner Cable’s weak subscriber figures spotlighted its disparity with market leader Comcast Corp. (CMCSA), which beat estimates for customer additions earlier this week.
Time Warner Cable lost more video customers than projected last quarter, with 191,000 subscribers leaving the company. Analysts had projected a drop of 164,000. Sales rose 2.7 percent to $5.55 billion, missing the $5.57 billion estimate.
The sluggish growth may also be leading investors to wonder if the company makes more sense as a takeover target, Blair said. Charter Communications Inc. (CHTR), the fourth-largest U.S. cable company, has studied a merger with Time Warner Cable, which would come with a potential investment by John Malone’s Liberty Media Corp., people familiar with the matter have said.
“The stock isn’t trading on fundamentals -- it’s trading on how likely a deal is,” said Craig Moffett, an analyst at Moffett Research LLC in New York. “Time Warner Cable has to make a case for itself that it’s worth more independently than it is in Charter’s hands. If that’s the test, they fail right now, and that’s driving the stock up.”
An acquisition by Charter would mean getting bought by a smaller peer, potentially loading up the new company with debt. Time Warner Cable Chief Financial Officer Artie Minson said today that the company didn’t want to increase its debt level, although “if something opportunistic came up we would look at it.” He didn’t comment on Charter.
Share buybacks last quarter totaled $638 million, or 6.6 million shares, compared with $660 million in the previous period. The company increased the remaining share repurchase authorization to $4 billion.
Time Warner Cable also is negotiating with CBS Corp. over a new agreement to carry the broadcaster’s programming. The two sides have extended discussions several times in the past week to avoid a prolonged blackout of the CBS and Showtime networks to about 3 million customers.
Time Warner Cable Chief Operating Officer Rob Marcus, who will be replacing Glenn Britt as Chief Executive Officer in 2014, declined to give an update on the state of negotiations with CBS during a conference call.
“We are very focused on ensuring that we obtain reasonable pricing for the programming that our customers value so that we can ensure they can pay reasonable prices for our video services,” Marcus said.
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