DirecTV Touts Growth Outlook in Latin America

7:21 AM PST 03/29/2012 by Georg Szalai
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"The best is yet to come" in the region, chairman and CEO Mike White tells a DirecTV Latin America investor day.

NEW YORK - DirecTV executives on Thursday morning touted the growth outlook for DirecTV Latin America, with Mike White, the chairman and CEO of the satellite TV firm, vowing that "the best is yet to come."

"We have had a terrific couple of years," but there is more growth in the years ahead, he said in opening the DirecTV Latin America Investor Day, which was webcast. The growth outlook for the region "is still huge," making DirecTV Latin America a "terrific opportunity" for investors, he said.

More than 80 percent of DirecTV's profit growth in 2011 came from Latin America, and the region will also provide "a disproportionate share of our revenue and profit growth" in the coming years, White told a Wall Street crowd. He predicted growth of "well north of 40 percent" in both revenue and profit this year in Latin America.

Among the region's growth drivers are household formation and growing penetration of pay TV in TV households amid an expanding middle class, he said. Last year, the Latin American business accounted for 19 percent of total company revenue and 24 percent of profit when excluding Mexico where the company owns only 41 percent in a joint venture with Grupo Televisa.

Amid repeated questions in the past about a potential spin-off of DirecTV Latin America, White said it is a "really important part" of the DirecTV portfolio. He has previously signaled that his team is planning to keep its U.S. and Latin American business together.

On Thursday, he highlighted that the two businesses are "highly synergistic." For example, he cited over $100 million of research and development spending in the U.S., which also benefits Latin America, matching product roadmaps and programming costs that can be spread across all regions. White also pointed out that Latin American financial trends are complementary to trends in the U.S. as the former is higher growth, but creates less cash so far.

And he said that the U.S. business "is starting to learn some lessons from Latin America." As an example, he mentioned how DirecTV Latin America manages lower-priced offerings. "Value customers have lessons for our U.S. business," the CEO said. DirecTV Latin America rejigged program deals to make value packages work as not all networks can be in all packages, but the company wanted to ensure it can make a profit, executives said.

Collins Stewart analyst Thomas Eagan had on Wednesday urged investors to buy DirecTV's stock ahead of the Latin America investor day. He reiterated his "buy" rating on the stock with a $68 target price. In early Thursday trading, the stock was virtually unchanged.

Bruce Churchill, president of DirecTV Latin America, said that Brazil, where the firm uses the Sky brand, remains its flagship market with revenue in 20111 just above $3 billion and operating income before depreciation and amortization slightly above $1 billion. The growth of the middle class is "what really has been driving our growth in Brazil," with more upside to come, he said.

DirecTV brass on Thursday said that Sky wants to double its subscribers over five years, which the company called an "aggressive, but achievable" goal.

Churchill said that Argentina is also "still experiencing substantial growth" even though it has a higher penetration of pay TV services. And Sky Mexico should benefit from growth upside as it is a market with still low pay TV penetration. Mexico has "great potential," Churchill said.

Email: Georg.Szalai@thr.com

Twitter: @georgszalai

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