Bloomberg News

Cablevision Drops After Forecasting Lower Free Cash Flow

February 28, 2012

Cablevision Systems Corp. (CVC), the fifth-largest U.S. cable provider by subscribers, declined the most since October after saying free cash flow will be lower this year because of an increase in capital expenditures.

Investing in cable set-top box inventories, costs to upgrade networks and no planned subscriber fee increases will result in lower free cash flow in 2012, Chief Financial Officer Gregg Seibert said today on a conference call to discuss the company’s fourth-quarter earnings.

Cablevision said it would cease offering its lowest-priced introductory packages to new subscribers after rates became too low to make economic sense, Chief Executive Officer James Dolan said on the call. Cablevision has been reducing rates to gain customers amid competition with rivals including Verizon Communications Inc. (VZ)

“The main theme that people should take away from the call today is that we continue to be focused on moving the business in a direction where we both retain existing subscribers and have attractive, economically sensible offers for new subscribers,” Seibert said.

The shares declined 9.7 percent to $14.13 at the close in New York, the biggest one-day drop since Oct. 28. Cablevision has fallen less than 1 percent this year.

Dolan said he would run Cablevision’s operations “for the foreseeable future” instead of immediately hiring a replacement for former chief operating officer Tom Rutledge, who left in December to become the CEO of Charter Communications Inc. (CHTR)

Dolan’s Future

“As soon as Dolan said he was going to run the company for the foreseeable future, the stock went down,” said Amy Yong, an analyst at Macquarie Securities in New York. “I just don’t think he has the sophistication to run the operations.”

Fourth-quarter net income fell to $60.6 million, or 22 cents a share, from $113.9 million, or 38 cents, a year earlier when AMC Networks contributed to profit, the Bethpage, New York- based company said in a statement. Net sales increased 7.3 percent to $1.69 billion. Analysts projected $1.68 billion on average.

Cablevision lost 14,000 video subscribers in the quarter, compared with the average analyst estimate of a 9,000 decline. As Cablevision duels for customers with Verizon FiOS, video margins are being squeezed as prices decline to entice new subscribers, said Michael McCormack, an analyst at Nomura Securities International Inc. in New York. Cable operating margin, excluding one-item adjustments, was 39.1 percent, down from a year ago due to programming cost increases, Seibert said.

“Going forward, obviously expect programming costs to be going up, certainly mid- to high-single-digit percentages,” Seibert said.

The company added a net of 20,000 high-speed data customers and 31,000 phone subscribers in the quarter. Analysts projected 16,000 net broadband additions and 19,000 phone customers, the average of estimates.

On June 30, Cablevision separated AMC, which includes AMC, Sundance Channel, IFC and WE tv.

(Cablevision held a conference call today. To listen, visit http://www.cablevision.com/investor/index.jsp.)

To contact the reporter on this story: Alex Sherman in New York at asherman6@bloomberg.net.

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net


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