Can Time Warner Cable Handle This Scary Reality?
Time Warner Cable (NYSE:TWC), the largest provider of cable television in the United States after Comcast (NASDAQ:CMCSA), has seen its profits pressured by more financially-stricken customers cancelling their residential video plans and increased programmer fees from television networks — as have many competing services.
In an attempt to redefine its business, the company has focused on its broadband cable and business services units, where margins are higher. A double digit increase in its business services revenue helped offset the impact of declining residential video subscribers, contributing to a net profit increase of 5 percent for the first quarter.
While profits improved significantly over results posted in the year-ago quarter, Time Warner failed to beat both top-line and bottom-line expectations. On Thursday, the cable provider reported a profit of $401 million, or $1.34 per share, an increase from $382 million, or $1.20 per share, a year earlier. Revenue also improved, climbing 6.6 percent to $5.48 billion. However, analysts polled by Thomson Reuters had predicted earnings of $1.37 on a revenue of $5.49 billion…
Revenue from residential services, the sector that generates most of the company’s top line, rose 4 percent from the year-ago quarter to $4.61 billion. Business service revenue increased 25 percent to $537 million, and advertising revenue jumped 8.1 percent to $228 million.
Yet the company’s difficulties showed through the results. Its operating margin fell to 19.4 percent from 20.3 percent and video programming expenses climbed 6.8 percent. Contributing to the tighter margins and higher expenses was the loss of 119,000 video subscribers from the prior quarter. Like Comcast, Time Warner has increasingly relied on Internet customers to replace the loss of cable-TV subscribers and deal with rising programming costs. However, for the three month period, the company only added 143,000 customers, far fewer than the 181,000 additions analysts had expected, according to StreetAccount.
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