NBCUniversal First-Quarter Profit Rises, Comcast Says It Won't Comment on Deal "Rumors"

Ride Along 2 Still 4 - H 2016
Quantrell D. Colbert/Universal Pictures

Ride Along 2 Still 4 - H 2016

The cable giant continued to grow its pay TV subscribers in the latest period, for which it posted results after Tuesday's news of talks about a possible takeover of DreamWorks Animation.

Cable giant Comcast on Wednesday reported better-than-expected first-quarter results, including improved profitability figures for its entertainment arm NBCUniversal and stronger-than-expected pay TV subscriber gains.

But the company opened its earnings conference call saying it would not comment on recent deal "rumors or speculation" following late Tuesday news of talks about a potential takeover of DreamWorks Animation for $3 billion-plus. A representative said the company would not comment on “recent rumors or speculation about any M&A transaction” before introducing Comcast chairman and CEO Brian Roberts.

One analyst tried to lure Roberts into saying whether he would rather buy more content or distribution assets. “If you have more than one kid, you love them equally,” he replied. “They are both great businesses. Everything is specific to the situation.” He also said on the call that both parts of the business, content and distribution, are performing at “exceptional” levels and argued that “we are better together.”

NBCUniversal CEO Steve Burke was asked about the importance of China for the company, and he called it a “big, big opportunity," adding: "We are doing all the things you'd expect.” Analysts have said DWA's Chinese connections would be of interest to NBCU.

A deal “would secure Universal with a well-established animation studio, a burgeoning TV business and two gems in the portfolio: AwesomenessTV and Oriental DreamWorks," wrote Macquarie Securities analyst Amy Yong.

Kicking off earnings season for big Hollywood players, NBCUniversal posted operating cash flow, the profitability metric the company uses, of $1.6 billion, compared with $1.5 billion in the year-ago period despite a 43 percent drop in film unit operating cash flow and a tough broadcast unit comparison since NBC in the year-ago period had aired the Super Bowl.

The 10 percent operating cash flow increase was driven by a theme park acquisition in November and improved broadcast and cable networks unit results. Revenue for NBCUniversal increased 3.9 percent to $6.9 billion.

Adjusting results for the late 2015 acquisition of Universal Studios Japan, operating cash flow rose 1.8 percent. Revenue decreased 0.4 percent on that basis, but when also excluding $376 million of revenue generated by the Super Bowl last year, it increased 5.4 percent.

After much success last year, the company's film unit had a difficult quarter amid the year-ago strength of Fifty Shades of Grey and some struggling releases, such as Ride Along 2, which had a strong start and then dropped off, and the Coen Brothers' Hail, Caesar! Late in the quarter, Universal also opened My Big Fat Greek Wedding 2 opened. Film unit operating cash flow fell to $167 million as a 4.3 percent revenue drop combined with higher advertising, marketing and promotion costs.

Home entertainment revenue declined 24.4 percent, "primarily due to the strong performance of several releases in the prior-year period, including Lucy," the company said. A 21.2 percent increase in content licensing revenue was "primarily due to the timing of availability of content in the pay TV window and a new licensing agreement." And "other revenue" jumped 27.1 percent due to higher Fandango and consumer products revenue, primarily driven by Minions and Jurassic World merchandise.

NBCUniversal said its broadcast unit revenue dropped 7.3 percent from the year-ago period when NBC aired the Super Bowl. But excluding the Super Bowl, advertising revenue rose 9.6 percent. And broadcast operating cash flow rose 56.5 percent to $284 million thanks to lower programming and production costs compared with the Super Bowl.

Cable networks unit ratings declined again in the quarter, but ad revenue was unchanged and total revenue climbed 4 percent, with operating cash flow growing 6.4 percent to $956 million helped by the higher revenue and "a modest increase in programming and production costs," the company said. But in a comment that Wall Street observers will take note of amid the ongoing cord-cutting debate, NBCUniversal said its distribution revenue at the cable networks unit rose 5.9 percent driven by contractual rate increases and contract renewals, while "partially offset by a decline in subscribers at our cable networks."

Theme parks unit operating cash flow rose 53.6 percent, or 3.3 percent when excluding the Japan acquisition, with the company citing "higher revenue, partially offset by an increase in operating expenses, including pre-opening costs to support new attractions opening in Hollywood and Japan this spring."

Meanwhile, Comcast continued to grow its pay TV subscribers in the first quarter, marking the first time in two years that the cable giant has grown its video customers for two quarters in a row. Macquarie Securities analyst Amy Yong had forecast a net gain of 32,000 pay TV subscribers for the quarter, while Wells Fargo's Marci Ryvicker had expected a 35,000 net gain. In the year-ago period, Comcast had lost 8,000 video subscribers.

But Comcast added 53,000 net new video subs in the first quarter and 438,000 broadband users, up from 407,000 in the year-ago period. "We delivered our best first-quarter Internet results in four years and our best first-quarter video results in nine years," Roberts said, calling the performance "outstanding." Cable operators have seen strong subscriber momentum, while telecom companies have seen weakening momentum.

Roberts added: "NBCUniversal also had a terrific quarter, reporting double-digit operating cash flow growth, fueled by strength in broadcast, continued success at our theme parks, including Universal Studios Japan, and improved performance from our cable networks. Our teams are executing extremely well, and I am excited about the opportunities ahead for Comcast NBCUniversal.”

Overall, Comcast recorded earnings of $2.2 billion, up 3.6 percent, on a 5.3 percent revenue gain to $18.8 billion. The figures exceeded Wall Street expectations.

Comcast's stock rose about 2 percent in pre-market trading.