Comcast Beats on Q2 Earnings, Misses on Revenues

Comcast Corp. CMCSA reported mixed financial results for the second quarter of 2014. The company's net earnings easily outpaced the Zacks Consensus Estimate due to a 4.5% year-over-year rise in average revenue per user (ARPU) per month to $137.24. The upside was supported by a 2% price rise of services at the beginning of 2014 and a significant increase in triple-play bundled services subscriber base.

However, Comcast's top-line fell well below the Zacks Consensus Estimate. In the reported quarter, the company lost a sizeable 144,000 video subscribers. This can be primarily attributed to Comcast's less-than-expected revenue growth.

Yesterday, online video streaming service provider and Comcast's major competitor Netflix Inc. NFLX reported strong subscriber growth both in the U.S. and also in the international markets. Comcast currently has a Zacks Rank #3 (Hold).   

Second-Quarter Results in Detail

GAAP net income in the second quarter came in at $1,992 million or 76 cents per share compared with $1,734 million or 65 cents per share in the prior-year quarter. Further, quarterly adjusted earnings per share of 75 cents steered past the Zacks Consensus Estimate of 72 cents. Meanwhile, total revenue stood at $16,844 million, up 3.5% year over year and lagged the Zacks Consensus Estimate of $16,954 million.

Quarterly operating costs and expenses totaled $11,040 million, up 1.8% year over year. However, quarterly operating income came in at $3,804 million, representing annualized growth of 10.7%. Operating margin was 22.6% compared with 31.7% in the prior-year quarter. During the second quarter, Comcast repurchased 15 million worth of common shares for $750 million and paid dividends valued $585 million.

In the second quarter of 2014, Comcast generated $5,804 million of cash from operations compared with $5,425 million in the year-ago quarter. Consolidated free cash flow stood at $1,155 million as against $1,948 million in the prior-year quarter.

Cash and marketable securities, at the end of the second quarter of 2014, were $3,854 million against $5,291 million at the end of 2013. Total debt at the end of the reported quarter was $46,549 million as against $44,567 million at the end of 2013. The debt-to-capitalization ratio was 0.45 compared with 0.47 at the end of 2013.

Cable Communications Segment

Quarterly total revenue of $11,029 million reflected a 5.4% year-over-year rise. Operating cash flow was $4,564 million, up 5.3% year over year. Within this segment, Video revenues were $5,239 million, up 1.2% from the prior-year quarter. High-Speed Internet revenues totaled $2,819 million, up 9.7% year over year. Voice revenues were $922 million, up 1.3% year over year. Advertising revenues were $599 million, up 7.5% from the year-ago quarter. Business Services revenues were $965 million, up 22.4% year over year. Other revenues were $485 million, up 3.9% from the prior-year quarter.

On Jun 30, 2014, Comcast had 21.271 million (up 6.4% year over year) High-Speed Internet customers; 11.003 million (up 6.5% year over year) Voice customers; and 22.457 million (down 0.9% year over year) Video customers. The company added a net of 203,000 High-Speed Internet customers compared with 187,000 in the year-ago quarter. Similarly, Comcast gained 137,000 Voice customers as against 161,000 in the prior-year quarter. On the other hand, the company lost 144,000 video subscribers compared with a loss of 162,000 video customers in the year-ago quarter.

In the reported quarter, Comcast gained 152,000 triple-play subscribers but lost 82,000 and 95,000 double-play and single-play subscribers, respectively.

NBC Universal Segment

Quarterly total revenue of $6,016 million reflected a mere 0.3% year-over-year growth. Operating cash flow was $1,434 million, indicating a 20.4% year-over-year increase. Within this segment, Cable Networks revenues were $2,476 million, up 2.6% year over year. Broadcast TV revenues came in at $1,816 million, up 4.9% year over year. Filmed Entertainment revenues were $1,176 million, highlighting a reduction of 15.3% from the year-ago quarter. Theme Parks revenues were $615 million, up 12.8% year over year.

Latest Development

In Apr 2014, Comcast reached an agreement with Charter Communications Inc. CHTR to divest 3.9 million subscribers as a strategic decision to ease regulatory concerns over its proposed merger with Time Warner Cable Inc. TWC.

In Feb 2014, Comcast had reached an agreement with Time Warner Cable to acquire the latter in an all-stock deal valued at around $45.2 billion. The deal is expected to face tough scrutiny and close monitoring by regulator, Federal Communications Commission (FCC) and is likely to get a decision within a year.