Time Warner Cable Second-Quarter Profit Up 23%, Video Subs Down

The second-largest U.S. cable operator lost 130,000 residential video subscribers as earnings season for large TV distributors kicks into high gear.

NEW YORK – Time Warner Cable on Thursday reported a 22.8 percent gain in second-quarter profit that exceeded Wall Street estimates, but said it lost 130,000 residential video subscribers during the period, slightly more than analysts had expected.

In the year-ago period, the second- largest U.S. cable TV operator had recorded a decline of 111,000. Total primary service units, a figure that shows the decline or increase in subscribers across video, broadband and telephony services, declined by 16,000 at TWC. The company also reported weaker VOD and premium channel revenue.

During an earnings conference call, TW Cable management said that sluggish subscriber momentum has continued into the third quarter. Executives cited heated competition, such as aggressive promotions from satellite TV giant DirecTV and telecom players, as well as the weak economy as key factors. In terms of the economy, they highlighted that analog video-only customers who dropped their cable connections drove the decline in video users.But they said that digital video and bundle users fared better and that some regions, such as Southern California and Texas, have seen better customer momentum than others.

"Primary service units results disappoint, so the stock and sector may trade off," said Wells Fargo analyst Marci Ryvicker in a first reaction. "That said, it is a seasonally weak quarter in a difficult economy combined with a lot of competition."

She later added: "Movies on demand declined - maybe due to Netflix and other online video distributors, but there is no conclusive evidence."

TW Cable shares fell along with the stocks of other cable operators as analysts said investors seemed to read the video subscriber declines as a sign of things to come from other firms. TW Cable's stock closed down 4.8 percent at $73.43, Comcast shares dropped 2 percent, and Cablevision Systems declined 1.7 percent amid a broader market decline.

"We think investors should take the opportunity to buy Comcast on this weakness given TW Cable results have not been a great extrapolation for Comcast most recently," Ryvicker suggested, also highlighting that "NBCUniversal may be more of a help this quarter than last" and that Comcast is "the cheapest stock of our entire media/cable coverage."

TW Cable said Thursday that its second-quarter earnings rose from $342 million to $420 million on a 4.4 revenue increase to $4.9 billion.

TW Cable CEO Glenn Britt said the company “continued to perform well” in the latest quarter.

The firm added 54,000 residential broadband customers and 32,000 telephony subscribers in the quarter ended June 30.

Its video subscriber decline for the period does not include a gain of 6,000 users from the acquisition of cable systems during the quarter. Its residential video subscriber count stood at 12.07 million as of June 30. It also had 168,000 video subscribers from business customers.

Email: Georg.Szalai@thr.com

Twitter: @georgszalai