2nd UPDATE: DirecTV Posts 4Q Loss On Merger, Plans Buyback
February 18 2010 - 3:59PM
Dow Jones News
DirecTV Group Inc. (DTV), beginning to feel the effects of more
aggressive competition, swung to a fourth-quarter loss, thanks to a
charge related to its merger with Liberty Entertainment, but it
said it plans to buy back $3.5 billion worth of its stock.
The El Segundo, Calif., satellite TV provider has in recent
quarters been more willing to let go of lower-end customers staying
on for promotions in an effort to reduce its service costs and
boost its profitability. But the company's subscriber growth in the
period was alarmingly low, illustrating the strides rival Dish
Network Corp. (DISH) has made in recent months. DirecTV a week ago
sued Dish over alleged misleading advertisements.
The company is now judged less on its ability to add customers
and more on driving cash flow and profitability, analysts said.
"The payoff for DirecTV's restraint was sustained financial
strength," said Craig Moffett, an analyst at Sanford C. Bernstein
& Co.
DirecTV reported a fourth-quarter loss of $32 million, or 3
cents a share, compared with a year-earlier profit of $332 million,
or 32 cents a share. Excluding the merger-related charge, per-share
earnings would have been 48 cents.
Revenue rose 13% to $5.98 billion.
Analysts, on average, had projected earnings of 40 cents a share
and revenue of $5.82 billion.
DirecTV shares rose 1.1% to $31.99.
The satellite provider added 119,000 net subscribers in the
quarter, a 60% drop from a year earlier. The company ended the year
with 18.6 million customers.
New Chief Executive Michael White blamed the lower number on
tighter credit policies, increased competition and the
macroenvironment.
"The economic recovery continues to be quite fragile," White
said during a conference call Thursday.
The rate of customer cancellation rose to 1.52% from 1.42% a
year ago. The average monthly bill, however, rose to $92.36 from
$90.46 in the face of increased use of discounts by Dish as well as
rivals such as AT&T Inc. (T) and Verizon Communications Inc.
(VZ).
"We recognize the industry has gotten more competitive," White
said.
DirecTV expects revenue growth in the mid-single digits this
year, as well as for earnings to rise 50% to more than $2 a share.
Analysts are predicting 9% growth in revenue and per-share earnings
of $2.20.
DirecTV isn't expected to repeat the performance of the last few
years, when it added subscribers at a rapid clip despite the
struggles of the cable companies and Dish. The company was quicker
to push high-definition content and digital video recorder
technology in the past few years, giving it a momentary edge that
has since faded. The company, like the other pay-TV providers, also
received a one-time benefit from the migration to digital
television, prompting many consumers to switch to a pay service
last year.
The subscriber shift had already begun in the last two quarters,
with DirecTV more willing to let go of customers that signed up for
promotions and less likely to pay for premium services. Dish,
meanwhile, has gotten aggressive with its own promotions, offering
its service for $10 a month for the first year. DirecTV's cheapest
package is $29.99. Dish's biting ads irked DirecTV enough to prompt
legal action.
DirecTV's Latin American business, meanwhile, continued to
perform strongly on higher demand for advanced services, as revenue
rose 47% to $839 million, as the average monthly bill rose 25% to
$62.67.
The company added 254,000 net subscribers as the turnover rate
inched lower from a year ago. It expects to add a similar amount of
customers this year.
DirecTV also said it would repurchase its own stock. Chief
Financial Officer Patrick Doyle said he believed the stock was
undervalued and that the company would complete the buyback by the
end of the year.
In November, DirecTV completed its merger with Liberty
Entertainment, which was owned by media mogul John Malone and
Liberty Media Corp. (LINTA, LMDIA, LCAPA). Malone remains a large
minority shareholder of DirecTV.
-By Roger Cheng, Dow Jones Newswires; 212-416-2153;
roger.cheng@dowjones.com
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