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Why Is Comcast (CMCSA) Down 0.6% Since Last Earnings Report?

Zacks Equity Research
In the latest trading session, iQIYI, Inc. Sponsored ADR (IQ) closed at $18.18, marking a +0.94% move from the previous day.

A month has gone by since the last earnings report for Comcast (CMCSA). Shares have lost about 0.6% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Comcast due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Comcast Benefits from Growth in High-Speed Internet Revenues

Comcast reported first-quarter 2019 adjusted earnings of 76 cents per share that beat the Zacks Consensus Estimate by a dime. The figure jumped 16.9% year over year.

Consolidated revenues increased 17.8% year over year to $26.86 billion but lagged the Zacks Consensus Estimate of $27.31 billion.
 
However, revenues on a pro forma basis (considers Sky transaction occurred in Jan 1, 2017) declined 3.3% year over year.

Cable Communication Revenue Details

Revenues climbed 4.2% from the year-ago quarter to $14.28 billion. Total Customer Relationships increased 300K to 30.7 million.

High-speed Internet revenues increased 10.1% year over year to $4.58 billion, primarily driven by an increase in the number of residential high-speed Internet customers and rate adjustments. Total high-speed Internet customer net additions were 375K.

Business Services revenues were up 9.5% to $1.89 billion on increasing number of customers for its products.

Wireless revenues increased 21.4% to $225 million supported by an increase in the number of customer lines. Comcast added 170K wireless lines in the reported quarter.

Other revenues increased 7% from the year-ago quarter to $413 million on an increase in X1 licensing revenues and higher sales from security and automation services. Total security and automation customer net additions were 17K at the end of the first quarter.

Advertising revenues declined 4.5% to $556 million primarily due to lower political advertising revenues.

Voice revenues were $990 million, down 1.6% year over year owing to a declining number of residential voice customers.

Video revenues dropped 0.5% to $5.63 billion, reflecting a decline in the number of residential video customer count.

Total video customer net losses were 121K, while total voice customer net losses were 53K.

At the end of the first quarter, 67.3% of Comcast’s residential customers received at least two Xfinity products.

NBCUniversal Revenues Decline Y/Y

Revenues declined 12.5% year over year to almost $8.31 billion.

Cable Networks’ revenues dropped 9.2% from the year-ago quarter to $2.87 billion, primarily due to lower distribution (down 6.8%), content licensing & other (down 12%), and advertising revenues (down 12.8%).

Broadcast Television revenues plunged 29.4% from the year-ago quarter to $2.47 billion, owing to a drop in advertising (down 44.3%), and distribution & other revenues (down 3.2%).
Filmed Entertainment revenues increased 7.4% from the year-ago quarter to $1.77 billion.

Theatrical revenues rose 5.1% on strong collections from How to Train Your Dragon: The Hidden World and Us. Home Entertainment revenues increased 7.4% buoyed by strong sales of Dr. Seuss’ The Grinch. Content licensing revenues climbed 11.5% year over year.

Theme Parks revenues were $1.28 billion, almost unchanged from the year-ago quarter.

Sky Revenue Details

Pro Forma Revenues declined 5% year over year to almost $4.80 billion. At constant currency (cc), revenues increased 1.9%.

Direct-to-consumer revenues declined 7.2% (up 0.4% at cc) from the year-ago quarter to $3.83 billion.

Content revenues jumped 29.5% (38% at cc) to $370 million on increased penetration of premium sports and movie channels on third-party pay TV networks in the United Kingdom, and higher monetization of the company’s slate of original programming. Notably, the company won exclusive sports rights in Italy and Germany.

Advertising revenues deteriorated 6% (up 0.7% at cc) from the year-ago quarter to $593 million.

Pro Forma Total Customer Relationships increased 112K to 23.7 million in the reported quarter.

Operating Details

Consolidated programming & production costs increased 15.3% from the year-ago quarter to $8.57 billion. As percentage of revenues, programming & production costs contracted 70 basis points (bps) on a year-over-year basis.

Consolidated adjusted EBITDA increased 18.1% from the year-ago quarter to $8.55 billion. Pro Forma (including Sky operations) adjusted EBITDA increased 6.4%.

Segment-wise, Cable Communications’ adjusted EBITDA increased 9.8% from the year-ago quarter to $5.73 billion. Cable Communications operating expenses increased 0.8% on a year-over-year basis on higher video programming costs.

Cable Communications results include a loss of $103 million from the wireless business, compared with a loss of $189 million in the year-ago quarter.

NBCUniversal adjusted EBITDA increased 2.9% from the year-ago quarter to $2.34 billion primarily owing to 78.7% growth in Filmed Entertainment adjusted EBITDA.

Sky’s adjusted EBITDA on a pro forma basis declined 17% (down 11.3% at cc) to $663 million. Notably, Sky’s operating costs and expenses fell 2.7% (up 4.4% at cc) to $4.13 billion.

Consolidated operating income increased 11.6% year over year to $5.18 billion. However, operating margin contracted 110 bps from the year-ago quarter to 19.3%.

Cash Flow & Liquidity

As of Mar 31, 2019, cash and cash equivalents were $10.74 billion, down from $11.10 billion as of Dec 31, 2018. Consolidated total debt was $109.09 billion, down from $111.74 billion as of Dec 31, 2018.

In first-quarter 2019, Comcast generated $7.23 billion of cash from operations compared with $5.47 billion a year ago.

Capital expenditures increased 6.0% to $2.1 billion. NBCUniversal’s capital expenditures rose 68.2% to $453 million owing to continued investments in Theme Parks.

Sky reported capital expenditures of $259 million, primarily reflecting investments in customer premise equipment, including continued deployment of Sky Q.

Free cash flow was $4.60 billion in the reported quarter.

During the quarter, Comcast paid dividends worth $869 million.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

VGM Scores

At this time, Comcast has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise Comcast has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.



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