Time Warner Cable Outperforms in Q2

| About: Charter Communications, (CHTR)

Time Warner Cable Inc. (TWC) reported excellent second-quarter 2010 financial results, which exceeded the Zacks Consensus Estimate. Both the Commercial and Residential Subscription revenues grew together with Advertising revenues.

GAAP net income was $342 million or 95 cents per share compared with a net income of $316 million or 89 cents per share in the prior-year quarter. Second-quarter 2010 adjusted (excluding restructuring costs) EPS of 97 cents was well above the Zacks Consensus Estimate of 93 cents.

Time Warner Cable performed exceptionally well in Digital video subscriber addition. Primary Service Units increased by 60,000 to 26.7 million and bundled subscribers totaled 8.5 million, or 59.0% of total customer relationships at the end of the reported quarter.


Total revenue surged 5.8% year over year to $4,734 million and exceeded the Zacks Consensus Estimate of $4,674 million. This was attributable to an increase in both Subscription revenue segment and Advertising revenue segment.


Adjusted operating income before depreciation and amortization (OIBDA) climbed 6.0% year over year to $1.8 billion. This was primarily due to a healthy growth in the top line, offset by higher video programming, marketing and voice costs. Video programming expenses were $1.1 billion (up 5.8% year over year), employee expenses were $954 million (up 4.0% year over year), marketing cost was $156 million (up 21.9% year over year) and voice cost was $167 million (up 6.4% year over year). GAAP operating income grew 4.1% year over year to $918 million, driven by a higher adjusted OIBDA, partially offset by higher depreciation expense and an increase in restructuring costs.

Cash Flow

Operating cash flow during the first half of 2010 was $2,692 million, compared with $2,571 million in the year-ago period. Free cash flow (cash flow from operations less capital expenditure together with principal payment for capital lease and intangible assets) for the first half 2010 escalated 18.6% year over year to $1.22 billion, attributable to higher cash provided by operating activities and a decrease in capital expenditures.

Balance Sheet

At the end of the second quarter 2010, Time Warner Cable had $814 million of cash & cash equivalents, compared with $1,048 million in the fiscal year 2009. Total debt, at the end of the quarter, was $21.2 billion versus $22.3 billion at fiscal year 2009 end. At the end of the reported quarter, the debt-to-capitalization ratio was 0.70 compared with 0.72 in fiscal year 2009.

Subscription Segment

Total Subscription revenue in the quarter increased 5.1% year over year to $4,518 million, attributable to a 4.2% increase in residential subscription revenues and a 20.2% increase in commercial subscription revenues. Within this segment, Video revenues summed up to $2,781 million (up 2.8% year over year), High-speed Data revenues were $1,232 million (up 9.7% year over year), and Voice revenues were $505 million (up 7.2% year over year).

Advertising Segment

Advertising revenues upped 24.1% year over year to $216 million.

Subscriber Statistics

During the reported quarter, Time Warner Cable added 50,000 Digital Video subscribers to 9.059 million. The company lost 111,000 Basic Video subscribers to 12.706 million, added 85,000 Residential high-speed data subscribers to 9.291 million, added 11,000 Commercial high-speed data subscribers to 0.315 million, added 63,000 Residential Digital phone subscribers to 4.302 million, and also added 12,000 Commercial Digital phone subscribers to 0.090 million.

During the same quarter, Time Warner Cable added 68,000 Triple play subscribers to 3.658 million, lost 29,000 Double play subscribers to 4.889 million, and lost 83,000 Single play subscribers to 5.951 million.

We maintain our Neutral recommendation for Time Warner Cable. Currently, it is a Zacks #3 Rank (Hold) stock.