DirectTV 2Q profit falls, but co. adds subscribers

DirecTV Group Inc., the nation's largest satellite TV operator, on Thursday reported an 11 percent drop in second-quarter profit as higher customer-acquisition costs offset revenue growth.

The El Segundo, Calif.-based company said that customers were cutting back on premium channels and pay-per-view programming. But DirecTV added 224,000 net new subscribers in the quarter, 74 percent more than the same period last year, at a time when cable operators are losing basic video customers.

It was DirecTV's first full quarter of partnership with AT&T Inc. to cross-sell each other's services, which boosted customer rolls.

DirecTV earned $407 million in the quarter, down from $455 million in the same quarter a year ago. Earnings per share held steady at 40 cents, below the 43 cents forecast by analysts polled by Thomson Reuters.

Revenue rose 9 percent to $5.22 billion from $4.81 billion, beating analysts' average estimate of $5.18 billion.

DirecTV's subscriber acquisition costs came to $727 million, up 15 percent from last year, due to a higher number of customers. The average cost per subscriber added fell 2 percent to $694.

The average monthly revenue received from subscribers rose 1.7 percent to $83.16. Free cash flow grew by 47 percent to $550 million.

"We continue to gain market share," said Larry Hunter, interim CEO, in a conference call with analysts. "The majority of our new gross adds continue to come from cable."

"DirecTV continues to execute at a very high level, quarter after quarter after quarter. Their product and management remain strong, and their key competitor (Dish Network) remains in relative disarray," Craig Moffett, senior analyst at Sanford Bernstein, wrote in a note to clients.

But DirecTV said the third quarter will be tougher. The company expects to add 156,000 net subscribers, about the same as in the year-ago period.

DirecTV cut its monthly subscriber revenue forecast by 1 percentage point to a range of 1 percent to 2 percent for the year. It also said 2009 cash flow will be lower by $150 million to $200 million as it serves 400,000 to 500,000 new customers.

Revenue at DirecTV Latin America rose 11 percent to $680 million. The division added 128,000 net new customers, which offset a decline in average monthly revenue per subscriber in Brazil.

In June, Chase Carey resigned as DirecTV's president and CEO to return to News Corp. as Rupert Murdoch's second in command. Carey, 55, joined News Corp. July 1 as deputy chairman, president and chief operating officer.

DirecTV also said that its spin-off from Liberty Media Corp. is on track to be completed within the next couple of months.

Later this year, DirecTV plans to offer live streaming of NFL games on cell phones. It also plans to launch downloadable TV applications.

Shares of DirecTV slid 92 cents, or 3.6 percent, to $24.84.

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