Comcast Beats, NBCU Division Weak

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Comcast Corp. (CMCSA) reported financial results for the second quarter of 2012, surpassing the Zacks Consensus Estimates. While the company’s Cable businesses continue to beat market expectations, NBC Universal division remains weak. Importantly, the company’s struggling basic video operation continues its positive momentum.

GAAP net income for the second quarter of 2012 was $1,348 million or 50 cents per share against a net income of $1,022 million or 37 cents per share in the prior-year quarter. Quarterly earnings per share of 50 cents surpassed the Zacks Consensus Estimate of 48 cents.

Total revenue came in at $15,211 million in the reported quarter, beating the Zacks Consensus Estimate of $15,161 million, up 6.1% year over year.

Quarterly operating costs and expenses were $10,207 million, up 7.1% year over year. However, quarterly operating income was $3,079 million, representing an annualized growth of 4.8%. Operating margin, in the second quarter of 2012, was 20.2% compared with 20.5% in the prior-year quarter. During the reported quarter, Comcast repurchased 25.8 million of its common share for $750 million and paid dividends totaling $438 million.

During the second quarter of 2012, Comcast generated $5,004 million of cash from operations compared with $4,801 million in the year-ago quarter. Consolidated free cash flow in the reported quarter was $1,554 million compared with $1,520 million in the prior-year quarter.

Cash and cash equivalents at the quarter end were $2,101 million compared with $1,620 million at the end of 2011. Total debt at the end of the previous quarter was approximately $37,129 million compared with $39,309 million at the end of 2011. At the end of the reported quarter, debt-to-capitalization ratio was 0.42 compared with 0.44 at the end of 2011.

Cable Communications Segment

Quarterly pro forma revenue was $9,897 million, up 6% year over year. Pro forma operating cash flow was $4,101 million, up 5.5% year over year. Within this segment, Video revenue was $5,079 million, up 2.8% year over year. High-Speed Internet revenue was $2,380 million, up 8.9% year over year. Voice revenue was $889 million, up 1.2% year over year.

Advertising revenue was $552 million, up 7.6% year over year. Business Services revenue was $582 million, up 34.2% year over year. Other revenue was $415 million, up 6.7% year over year.

As of June 30, 2012, Comcast had 18.738 million (up 6.8% year over year) High-Speed Internet customers; 9.664 million (up 6.6% year over year) Voice customers; and 22.118 million (down 1.8% year over year) Video customers. In the reported quarter, Comcast lost a net total of 176,000 video customers compared with a net loss of 238,000 customers in the prior-year quarter.

The company added a net 156,000 High-Speed Internet customers compared with 144,000 in the year-ago quarter. Similarly, Comcast added a net total of 158,000 voice customers compared with 193,000 in the prior-year quarter.  In the previous quarter, monthly ARPU from video customers increased 8% to $148.57.

NBC Universal Segment

Quarterly pro forma revenue was $5,504 million, down 0.8% year over year. The segment’s pro forma operating cash flow was $982 million, showing a 15.4% year-over-year decline. Within this segment, Cable Networks revenue was $2,252 million, up 3.6% year over year. Broadcast TV revenue was $1,540 million, down 9.1% year over year.

Alongside, Filmed Entertainment revenue was $1,231 million, down 1.8% year over year. Theme Parks revenue was $539 million, up 3.4% year over year.

Our Take

Comcast became the largest integrated content development and distribution company in the U.S. after completing the acquisition of the majority stake of NBC Universal from General Electric Co. (GE). We also remain quite optimistic regarding the company’s diversification, network upgrade and innovative product offering strategies.

Comcast continues to post strong growth in revenue and free cash flow. We maintain our long-term Neutral recommendation on Comcast. Currently, it holds a Zacks #3 Rank (Hold) on the stock.

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