Comcast Q2: All units up except Film

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Comcast-logoOverall, Q2 consolidated revenue increased 3.5% to $16.8 billion. Earnings per Share increased 16.9% to $0.76. Consolidated Operating Cash Flow increased 7.0% to $5.8 billion. Excluding $44 million of Time Warner Cable and Charter transaction-related costs in the quarter, consolidated operating cash flow increased 7.8%. Consolidated Operating Income increased 10.7% to $3.8 billion.


Excluding the gain on a sale and transaction-related costs, EPS increased 15.4% to $0.75. Quarterly dividends and quarterly share repurchases increased 31.7% to $1.3 billion.

For 1H, consolidated revenue increased 8.5% to $34.3 billion. Excluding $1.1 billion of revenue generated by the Sochi Olympics in the first quarter of 2014, consolidated revenue increased 5.0%. Consolidated operating cash flow increased 8.4% to $11.3 billion. Excluding $61 million of transaction-related costs in the first six months of 2014, consolidated operating cash flow increased 9.0%. Consolidated operating income increased 13.4% to $7.4 billion.

For 1H, EPS was $1.47, a 23.5% increase from the $1.19 reported in the prior year. Excluding gains on the sales of investments, a favorable resolution of a prior acquisition contingency and transaction-related costs in the first six months of 2014, as well as a gain on the sale of wireless spectrum licenses in the first quarter of 2013, EPS increased 23.3% to $1.43.

During Q2, Comcast paid dividends totaling $585 million and repurchased 15.0 million of its common shares for $750 million. In the first six months of 2014, Comcast has repurchased 29.9 million of its common shares for $1.5 billion. As of June 30, 2014, Comcast had approximately $6.0 billion available under its share repurchase authorization.

Revenue for Cable Communications increased 5.4% to $11.0 billion in Q2 compared to $10.5 billion in Q2 2013, driven by increases of 9.7% in high-speed Internet and 22.4% in business services. The increase in Cable revenue reflects rate adjustments, customers receiving higher levels of services and customer growth.

Revenue from the Cable Networks segment increased 2.6% to $2.5 billion compared to $2.4 billion Q2 2013, reflecting a 4.2% increase in distribution revenue and a 14.3% increase in content licensing and other revenue, partially offset by a 2.2% decline in advertising revenue. Operating cash flow increased 6.3% to $914 million compared to $860 million in the second quarter of 2013, reflecting higher revenue and moderate expense growth, with continued investment in programming.

For 1H, revenue from the Cable Networks segment increased 7.4% to $5.0 billion compared to $4.6 billion in 2013. Excluding $257 million of revenue generated by the Sochi Olympics in the first quarter of 2014, revenue increased 1.9%. Operating cash flow increased 5.3% to $1.8 billion compared to $1.7 billion in the first six months of 2013.

Revenue for NBCUniversal increased 0.3% to $6.0 billion in the second quarter of 2014 compared to last year’s second quarter as revenue growth in Broadcast Television, Theme Parks and Cable Networks was mostly offset by lower theatrical revenue in the Filmed Entertainment segment. Operating Cash Flow increased 20.4% to $1.4 billion compared to $1.2 billion in the second quarter of 2013, with improvement across all segments.

For 1H, NBCUniversal revenue increased 13.7% to $12.9 billion compared to $11.3 billion in 2013. Excluding $1.1 billion of revenue generated by the Sochi Olympics in the first quarter of 2014, NBCUniversal revenue increased 4.0%. Operating cash flow increased 28.0% to $2.7 billion compared to $2.1 billion in the first six months of 2013.

Revenue from the Broadcast Television segment increased 4.9% to $1.8 billion compared to $1.7 billion in the Q2 2013, driven by higher retransmission consent fees, as well as content licensing agreements, partially offset by a 1.7% decrease in advertising revenue due to fewer hours of The Voice compared to the same period a year ago. Operating cash flow increased 16.2% to $240 million compared to $206 million in Q2 2013, reflecting higher revenue and a slight increase in operating costs and expenses.

For 1H, revenue from the Broadcast Television segment increased 36.6% to $4.4 billion compared to $3.2 billion in 2013. Excluding $846 million of revenue generated by the Sochi Olympics in the first quarter of 2014, revenue increased 10.5%. Operating cash flow increased $191 million to $362 million compared to $171 million in the first six months of 2013.

Ad revenue was down slightly at 1.7% due to the timing of The Voice which aired significantly few hours in the second quarter compared to last year. YTD ad revenue is up 5.8% excluding the impact of the Sochi Olympics which is more indicative of the rating strength in the broadcast segment.

In 1H, Cable revenue increased 5.3% to $21.8 billion compared to $20.7 billion in 2013. Customer relationships decreased by 25,000 to 26.8 million during Q2, a 62% improvement compared to a decline of 66,000 during the Q2 2013. At the end of the second quarter, penetration of triple product customers increased to 36% compared to 34% in the second quarter of 2013. High-speed Internet customer net additions improved versus last year and were the strongest for a second quarter in six years. Video customer net losses improved year-over-year and were also the best result for a second quarter in six years.

Customer relationships decreased by 25,000 to 26.8 million during the quarter, a 62% improvement compared to a decline of 66,000 during the Q2 2013. At the end of the Q2, penetration of triple product customers increased to 36% compared to 34% in the second quarter of 2013.

Revenue from the Filmed Entertainment segment decreased 15.3% to $1.2 billion compared to $1.4 billion in the second quarter of 2013, reflecting lower theatrical revenue from fewer releases in the second quarter compared to the same period last year, partially offset by higher content licensing revenue, as well as higher home entertainment revenue from the strong performances of Ride Along and Lone Survivor. Operating cash flow increased $162 million to $195 million compared to $33 million in the second quarter of 2013, reflecting a decrease in the amortization of film costs and reduced advertising, marketing and promotion expense due to a smaller film slate.

For 1H, revenue from the Filmed Entertainment segment decreased 3.0% to $2.5 billion compared to $2.6 billion in 2013. Operating cash flow increased $381 million to $483 million compared to $102 million in the first six months of 2013.

Revenue from the Theme Parks segment increased 12.8% to $615 million compared to $546 million in the second quarter of 2013, driven by higher guest attendance and per capita spending at the Orlando and Hollywood theme parks, which benefitted, in part, from the timing of Spring holidays. Second quarter operating cash flow increased 5.6% to $244 million compared to $231 million in the same period last year, reflecting higher revenue, offset in part by additional costs related to marketing and training to support the opening of Orlando’s The Wizarding World of Harry Potter – Diagon Alley, which officially opened on July 8th.

For 1H, revenue from the Theme Parks segment increased 9.4% to $1.1 billion compared to $1.0 billion in 2013. Operating cash flow increased 2.5% to $414 million compared to $404 million in the first six months of 2013.

Said Brian Roberts, Comcast CEO: “Our second quarter results continue our strong progress in 2014. This is an important time as we focus on gaining approval for our Time Warner Cable transaction. So it’s just as important that the team stays focused on operations, and we believe that’s apparent in this quarter’s results.

For the second quarter, results were very strong with operating cash flow growth of over 20%. At NBC Broadcasting, the team has done a terrific job and we ended the season ranked number one in the important 18 to 49 demo and we’re the only network to deliver ratings growth versus last year. This ratings momentum translated into a very strong upfront for us where we made solid progress in closing the monetization gap we have relative to our peers, specifically we were able to achieve approximately 80% in CPMs which was substantially higher than the rest of the market.”

Some interesting questions from analysts, courtesy of Seeking Alpha:

Jessica Reif Cohen
Jessica Reif Cohen with Bank of America/Merrill Lynch
: “On NBCUniversal I guess two-part question. You obviously had a great relative upfront performance, but the ad market was down. And so I would love your views on how — if the advertising market, what’s going on in advertising for Broadcasting and Cable? Do you see the decline is cyclical or secular? And if it’s even somewhat secular how are you positioning your assets differently? And also on NBCU, given the likely consolidation in content, how are you positioning your assets differently. Do you need to bulk up?”

Stephen Burke – EVP; CEO, NBCUniversal: “We certainly don’t think we need to bulk up in content. We’ve sold all of our Broadcasting and Cable assets together in the upfront and I think that was a major reason why we had such a successful upfront relative to rest of the industry. If the industry was down call it 5% in the upfront, we’re not sure of the precise number, but that’s what we gather is pretty close. If the industry was down 5% and we were up 10% that’s a 15% difference versus what we would have done — had we done exactly what the industry did. And you apply that to a base of $5.3 billion and it’s a swing of $750 million.

And the reason why that occurred is because we made the investments in programming, NBC was number one. People came to us first and we sold together. So that’s $750 million improvement we think goes a long way not all the way, but a long way to closing what we’ve always refer to as the monetization gap. We’ve always said that the other broadcasters are on the order of $1 billion better off than we are.

So we closed $750 million of the gap. We think we’re about half way and so we can continue to count on closing that gap providing the fact that our ratings are good and we continue to bundle the properties and sell appropriately.

In terms of the overall market, I think the real question is what is scatter? And if scatter ends up being strong, this could end up being a very good year for advertising, and if scatter ends up weak that will obviously not be the case. So, we don’t put too much into the down 5% in the upfront. I think the year is going to play itself out and we’ll see where we end. There is some shift to digital. We don’t think that’s the majority factors here. That’s a minority factor. And I think the real question is what’s going to happen as the calendar and broadcast seasons play out.”

Craig Moffett
Craig Moffett – MoffettNathanson
: “I wanted to ask a couple of questions about Wi-Fi if I could. Neil, I think you said you’re going to have 8 million hotspots. How many of those are public hotspots versus dual SSID? And can you updates us on your thinking about whether the Wi-Fi business would become a retail strategy or whether it’s continued to be tied to your terrestrial broadband product? And then last, can you talk about how you think about spectrum as it relates to Wi-Fi would you like to have license spectrum — or a license LTE component of – that would sort of substitute for Wi-Fi with better interference? Or do you see it as an unlicensed product entirely?”

Neil Smit – EVP; President and CEO, Comcast Cable: “With regards to the hotspots we have about 3.6 million hotspots across the in-home network right now. Of the 8 million we’re going to, the majority of those close to 7 million will be in-home versus out of home. We’re currently extending the out of home markets at a pretty aggressive pace and so the network will fill out. And you would add to those in-homes, those SMB locations where we have dual SSIDs.

In terms of spectrum and how we think of it. We think our Wi-Fi network has a lot of potential. We’re not buttoned down totally on how we’d like to deploy that. But there’s lot of opportunities for example, the XFINITY home product we launched across the Wi-Fi network and there are other products that Wi-Fi can be the foundation for.

So we’re going to continue deploying it. We have the fastest in-home Wi-Fi routers and they’re going to keep developing that product. And I think that we’re seeing 75% to 80% of data usage — mobile data usage, its happening either in the home or in the office, so we think we’re well positioned going forward.”

Vijay Jayant
Vijay Jayant – ISI Group
: “Neil, now that you have some more time to sort of evaluate the Time Warner Cable, its synergies, can you sort of give us any update on sort of how you feel about the $1.5 billion number on the cost side and any color on the revenue side?”

Neil Smit – EVP; President and CEO, Comcast Cable: “Yeah, we feel very good about the cost synergies. They are in duplicated areas or in operations and we’ve gone through quite a bit of detail, the makeup of those synergies, the cost synergies and feel very good about them.

In terms of the revenue opportunities, we’ve also been through those and I think the opportunity to up sell and penetrate to a greater rate on the resi product is an interesting opportunity, as well as the opportunity to go into the enterprise base with commercial or of a more advanced advertising products across the broader base. So we feel — net-net we feel good about the synergies on the cost side and the CapEx side which were about $400 million and we also feel positive about the revenue upside.

Michael Angelakis – Vice Chairman and CFO: “The only think I would add, Vijay, I think you know we did these divestiture transactions and even with the divestiture transactions we’re reconfirming what we think our operating expense savings will be through the synergies and obviously the vast majority of those don’t come from the programming side. So, when we did the original transaction we set a target and even after the divestiture transactions we’re confirming that target is something that we think make sense.”

See the full Seeking Alpha transcript here.


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Carl has been with RBR-TVBR since 1997 and is currently Managing Director/Senior Editor. Residing in Northern Virginia, he covers the business of broadcasting, advertising, programming, new media and engineering. He’s also done a great deal of interviews for the company and handles our ever-growing stable of bylined columnists.