DirecTV posts 4th-quarter loss due to merger charges, adds fewer customers but beats outlook

By Deborah Yao, AP
Thursday, February 18, 2010

Charges drag DirecTV to 4th-quarter loss

DirecTV Inc. on Thursday reported a fourth-quarter loss after absorbing a hefty merger charge. The nation’s largest satellite TV operator also added 60 percent fewer new subscribers as discounted bundles from competitors and a weak economy took their toll on growth.

DirecTV has benefited from cable companies losing ground in the battle for subscribers. However, it is up against aggressive marketing from fellow satellite TV operator Dish Network Corp. which has offered hefty promotions aimed at stealing away bargain-hunters. Dish says its ads — which claim DirecTV service is more expensive — are bringing in customers. DirecTV is suing Dish for false advertising.

DirecTV still remains one of the brighter lights in the subscription TV industry. It has focused on customers with higher credit scores, and won higher-paying viewers by ramping up the number of high-definition channels and offering its exclusive NFL Sunday Ticket package that airs football games from other cities. Later this year, DirecTV will offer sporting events and movies in 3-D.

Still, the company isn’t immune to the drag of competition that has lured customers with promises of cheaper TV. DirecTV’s cancellation rate rose in the quarter.

“The economic recovery in the U.S. continues to be quite fragile. Consumers are still very cautious about spending money,” said CEO Michael White, a former vice chairman of PepsiCo Inc. who joined DirecTV on Jan. 1, in a conference call with analysts.

DirecTV lost $32 million, or 3 cents per share, compared with a profit of $332 million, or 32 cents per share, in the same quarter a year earlier. Excluding a $491 million pre-tax charge related to its merger with certain entertainment assets spun off by Liberty Media Corp. in November, DirecTV earned $454 million, or 48 cents per share. That’s 37 percent higher than earnings in the 2008 quarter.

Free cash flow, a key metric for the capital-intensive subscription TV industry, was up 64 percent to $710 million in the quarter. Revenue rose by nearly 13 percent to $5.98 billion from $5.31 billion.

Results beat the forecasts of analysts polled by Thomson Reuters, who expected adjusted earnings of 42 cents per share on revenue of $5.92 billion. The company also announced a new $3.5 billion stock buyback program which will help boost its bottom line.

Shares of DirecTV, based in El Segundo, Calif., rose $1.31, or 4 percent, to close at $32.96 — not far off their 52-week high of $34.42.

DirecTV added 119,000 new U.S. subscribers after cancellations, down from 301,000 in the 2008 quarter, to end the period with a total of 18.6 million customers. Analysts had expected DirecTV to add 185,000 new customers.

However, customers paid more per month. The average monthly bill rose 2 percent to $92.36 as price increases and orders of HD, DVR and the NFL package more than offset DirecTV’s promotional offers and lower pay-per-view revenue.

“In the face of Dish Network’s withering “anti-DirecTV” campaign, a “we’re cheaper” campaign … DirecTV seemingly accepted lower growth but has sustained profitability and cash flow,” said Craig Moffett, an analyst at Sanford Bernstein, in a research note.

DirecTV’s Latin America operations performed better than its U.S. business.

It added 254,000 net new customers in the region, up 59 percent from the prior year’s comparable quarter, and the pace of cancellations slowed. Revenue rose 47 percent to $839 million, as demand rose for its prepaid plans, as well as for HD and DVR services. Business was especially strong in Venezuela, Colombia and Brazil.

The company’s Latin American holdings include a 74 percent stake in Sky Brazil, 41 percent of Sky Mexico and all of PanAmericana.

For the year, DirecTV earned $942 million, or 95 cents per share, compared with a profit of $1.52 billion, or $1.37 per share. Revenue rose nearly 10 percent to $21.6 billion.

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