Time Warner Cable 3Q profit rises 21 percent

Time Warner Cable Inc., the nation's second largest cable operator, said Wednesday that its third-quarter profit rose 21 percent, boosted by strong growth in phone and Internet subscribers as well as higher cable TV prices.

But the New York-based company, which is in the process of separating from parent Time Warner Inc. by early 2009, trimmed its revenue outlook for the full year because of sharp drop-offs in subscriber sign-ups and higher disconnects in a softening economy.

Citing the "unprecedented" global economic slowdown, Chief Executive Glenn Britt told analysts in a conference call that it would be "naive to assume there would be no impact to our business."

He cited a "significant slowdown in subscriber growth compared to last year," as well as softening demand for premium video services such as pay-per-view and digital video recorders.

Britt said that while the country changed parties in electing Barack Obama to the White House, the same key lawmakers will be handling cable issues in Congress.

Given the country's more pressing problems, "issues related to our business and telecom in general are ... not particularly high on the agenda," he said. "That's a good thing."

In the quarter, Time Warner Cable earned $301 million, or 31 cents per share, compared with $248 million, or 25 cents per share, a year ago.

The cable operator said revenue climbed 8 percent to $4.34 billion from $4 billion.

Analysts polled by Thomson Reuters forecast profit of 28 cents per share on revenue of $4.36 billion.

Free cash flow rose 64 percent to $1.3 billion in the first nine months of the year, which the company said would help it afford the $10.9 billion special dividend to shareholders once its separation from Time Warner is finalized.

Time Warner Cable said its impending separation from the parent lowered quarterly results by 3 cents per share. Time Warner Inc. separately reported third-quarter profits Wednesday that beat Wall Street expectations,

Time Warner Cable said customers signed up for 522,000 new lines of services in the quarter, or revenue generating units, a key metric for cable performance. RGU growth was 656,000 in the second quarter.

Goldman Sachs analyst Ingrid Chung said she was disappointed with the decline in revenue generating units. She was forecasting 620,000 for the quarter.

In a research note, she said the decline indicates that customer churn — or cancellation rate — was higher than expected, the rate at which Time Warner Cable added new business was "much lower than usual" and subscriber additions in Los Angeles and Dallas have softened from a year ago.

Time Warner Cable lost 31,000 basic subscribers in the quarter, a trend among cable operators as they grapple with increased competition, especially from phone companies. The company said 70 percent of disconnects were in its cheapest tier priced at $13 a month.

But video revenue overall increased 4 percent to $2.64 billion, buoyed by 124,000 new digital TV customers and higher prices.

Revenue from high-speed Internet services climbed 12 percent to $1.1 billion. Time Warner Cable added 214,000 new residential data customers, which it noted was more than either AT&T Inc. and Verizon Communications Inc. were able to attract in the quarter — also a trend among cable operators as digital subscriber line customers switch to faster cable Internet.

"We continue to take significant broadband share from both companies," Britt said.

Voice revenue surged 37 percent to $421 million as a result of an increase in digital phone subscribers. The company added 200,000 new phone customers in the quarter.

Notably, Time Warner Cable added 168,000 triple play subscribers — those who buy video, high-speed data and voice services in a discounted bundle — during the quarter.

Looking ahead, the company expects revenue to increase by 8 percent this year from 2007's level of $15.95 billion, down from its April guidance of 9 percent. That puts revenue around $17.2 billion, compared with analysts' forecast of $17.3 billion.

But Time Warner Cable affirmed its full-year earnings forecast of $1.10 and $1.15 per share. Analysts expected 2008 profit of $1.13 per share. Free cash flow for the year should still increase by at least 40 percent, the cable operator said.

Shares of Time Warner Cable fell by 66 cents to $19.90 in Wednesday trading.

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