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UPDATE 3-Time Warner Cable charts path while rebuffing Charter

Liana B. Baker
Thursday, 30 Jan 2014 | 11:13 AM ET

Jan 30 (Reuters) - Time Warner Cable Inc, trying to fend off a takeover bid, posted better-than-expected quarterly results on Thursday and said it aims to increase the company's sales while also investing more in its technology over the next three years.

Shares rose $1.39 or 1 percent, to $133.49 per share.

"We are geared up to manage this company for the long haul," said CEO Rob Marcus, in his first conference call since he took over on Jan. 1.

When asked about Charter's $132.50 rejected bid earlier in January, Marcus reiterated that Time Warner Cable is only interested in an offer above $160 per share, and would be "willing to engage" if a deal drives more shareholder value than the company can create on its own.

"We said the price it would take to transact would be $160 and this is specific to Charter, $100 in cash, $60 in Charter stock," Marcus added.

The company, which is trying to convince investors it can do a better job at operating its business than its suitor Charter Communications Inc, unveiled a plan aimed at improving the company's spotty customer service and investing more in its technology.

Time Warner Cable said it would increase annual capital expenditures to $3.7 billion to $3.8 billion over the next three years, which should allow the company to improve its cable systems, invest in infrastructure and replace older equipment.

Macquarie analyst Amy Yong said this capital investment is 5 to 10 percent above her own estimates and said it will help Time Warner Cable speed up plans to upgrade its cable systems.

"Rather than smoothing this out over time, they're pulling the spending forward and finishing up their digitization plan," Yong said, referring to Time Warner Cable's plan to convert its systems to a digital signal.

The company expects to generate revenue of $25.7 billion, and adjusted operating income before depreciation and amortization of $9.4 billion, by 2016. These goals are marginally above Street estimates, according to MoffettNathanson Research analyst Craig Moffett.

Analysts liked Time Warner Cable's plan but cautioned it would not be a quick turnaround.

"The strategy shift and the guidance is encouraging. However, it will take some time for management to recover investor confidence in their ability to execute," said New Street Research analyst Jonathan Chaplin.

Moffett said, "the question that remains is whether any of this is enough." He expects Charter to sweeten its bid above $140 and receive some cash from Comcast after the deal . Reuters has reported Comcast is interested in buying some of Time Warner Cable's markets such as New York City.

CHARTER FIGHT

Marcus also dismissed the notion that Time Warner Cable lags Charter operationally. Charter's campaign for investor support to its $37.3 billion bid has focused on how Charter could run Time Warner Cable better under its CEO Tom Rutledge (For more on Rutledge, see: )

Charter has been quick to point out that Time Warner Cable suffers from one of the industry's poorest customer service records, has lost subscribers at a higher rate than other large operators, and lags in the roll out of new technology.

Time Warner Cable released a presentation showing how it has higher margins than Charter and offers more products and a better business services unit, which is the fastest growing area in the cable industry right now.

A Charter spokesman did not immediately respond to a request for comment on the presentation.

The company said revenue would rise 4 percent to 5 percent this year, above the roughly 2 percent analysts are expecting, according to Thomson Reuters I/B/E/S. Its free cash flow this year will be flat at $2.5 billion.

The company said it lost 217,000 video subscribers in the quarter, which was an improvement from the third quarter when it lost more than 300,000 subscribers, but was worse than Wall Street estimates of a loss of 206,200 subscribers.

Time Warner Cable's finance chief Arthur Minson said on the call that some of Time Warner Cable's subscriber numbers in 2013 were "dismal" but said the company was now seeing some momentum in 2014.

In the fourth quarter, the U.S. cable operator added 39,000 net residential Internet subscribers, a turnaround from a weak third quarter when it lost 24,000 subscribers.

Net income attributable to Time Warner Cable rose 5 percent to $540 million, or $1.89 per share, in the fourth quarter, from $513 million, or $1.68 per share, a year earlier.

Revenue rose about 2 percent to $5.58 billion.

Analysts on average expected earnings of $1.73 per share on revenue of $5.56 billion, according to Thomson Reuters I/B/E/S.

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