Liberty Global Underperforms

Zacks

Liberty Global Inc. (LBTYA) declared weak financial results for the second quarter of 2012. Both the top and the bottom-line fell below the Zacks Consensus Estimates. However, in the reported quarter, the company added a net 364,000 organic revenue generating units (:RGU), up 61% year over year.

Quarterly GAAP net loss from continuing operation was $214.7 million or a loss of 81 cents per share compared with a net loss of $347.2 million or $1.41 per share in the prior-year quarter.

Second-quarter 2012 loss per share of 81 cents was significantly worse than the Zacks Consensus Estimate of income of 10 cents per share. Quarterly total revenue was $2,524.5 million, up 3.9% year over year, but fell below the Zacks Consensus Estimate of $2,577 million.

Quarterly cost of operation was $887.3 million, up 3.7% year over year. Selling, General and Administrative expenses were $477.9 million, up 5.1% year over year. In the second quarter of 2012, operating income was $479 million, down 3.1% year over year.

During the first half of 2012, Liberty Global generated $1,454.9 million of cash from operations compared with $1,369.5 million in the year-ago period. Free cash flow (cash flow from operations less capital expenditures) in the first half of 2012 was $460.8 million compared with $402.6 million in the prior-year quarter.

At the end of the second quarter of 2012, Liberty Global had $2,893.7 million in cash & marketable securities and $23,910.2 million in outstanding debt on its balance sheet compared with $2,626.4 million in cash & marketable securities and $24,757.9 million of outstanding debt at the end of 2011. At the end of the reported quarter, debt-to-capitalization ratio was 0.89 compared with 0.87 at the end of 2011.

Subscriber Statistics

As on June 30, 2012, Liberty Global had 19.6113 million customers in 14 countries. UPC Broadband had 16.2144 million customers, Telnet had 2.5122 million and VTR 1.1211 million. Puerto Rico had 123,600 customers.

Total Single-Play customers reached 11.0339 million, down 1.8% year over year. Total Double-Play customer was 2.9505 million, up 1% year over year. Total Triple-Play customer was 5.6269 million, up 3.5% year over year.

During the reported quarter, Liberty Global added 364,000 net RGUs including net gains of 208,000 and 239,000 subscribers, respectively, for broadband Internet and telephony services and a net loss of 83,000 subscribers for video services.

In the second quarter, the company added 244,000 digital video subscribers. At the end of the reported quarter, Liberty Global had 8.6 million digital cable subscribers with a penetration rate of 49%. In addition, Liberty Global had 30,000 wireless subscribers in Chile.

Segment Results

Revenue from total UPC Broadband division was $1,694.7 million, up 8.4% year over year. Within this segment, revenue from Western Europe was $1,391.4 million, up 12% year over year. Revenue from Central and Eastern Europe was $275 million, down 4.8% year over year. Revenue from Central and other operation was $28.3 million, down 10.2% year over year.

During the quarter, Telenet revenue was $466.2 million, down 4.4% year over year. VTR revenue was $226.8 million, down 0.8% year over year. Corporate and other revenue was $157.5 million, down 8.9% year over year.

Recommendation

Deployment of high-speed DOCSIS 3.0 network has facilitated the company to can now compete with Virgin Media Inc. (VMED) and BT Group plc. (BT). However, due to weak second-quarter 2012 results, we maintain our long-term Underperform recommendation on Liberty Global. Currently, it holds a short-term Zacks #4 Rank (Sell) on the stock.

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