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Mixed Earnings, Cautious Guidance So Far for Media and Communications Companies


As expected, it has been a tricky earnings season for media and communications with mixed subscriber metric, financial results, and guidance.

Comcast beat expectations on most financial and subscriber metrics. Management at the cable business is doing a good job of rebranding, cost control, and taking advantage of the company's massive scale. Low-hanging fruit from a decade of lagging the industry is also helping. NBCU is also making progress with better ratings at NBC, a positive surprise.

Scripps Interactive was a clean beat on all metrics. This is a good example of a company operating independently of industry trends. Strong ratings are supporting ad growth and affiliate fees.

Time Warner Cable kicked off a series of weaker reports from cable and satellite companies. Slight misses on subscriber ads have heightened cord-cutting concerns and undercut the defensive argument for cable as resistant to the economy. Charter Communications had a similar report but a larger issue is a pickup in capital spending as new management attempts to accelerate subscriber growth and take advantage of the company's low penetration rates compared to its cable peers. Cablevision continues to struggle as it spends on capital and operating expenses to defend its turf against Verizon's (NYSE:VZ) FiOS.

DirecTV and Dish Network (NASDAQ:DISH) added to the gloom on video subs with both missing net add estimates. Gross adds were OK so the issue was churn. DirecTV also saw less sub growth in Latin America than expected. Interestingly, the weak results re-ignited discussion of a possible merger of the companies. The election results make that unlikely, however.

Discovery Communications results seemed to be impacted by one-time items offsetting a good print for domestic ad growth. Discovery has had excellent ratings so I think guidance for ad growth in upper single digits, no better than the third quarter with its tough Olympics comp, is weighing on the shares. Revenue and EPS guidance were lowered mostly on the one-time items.

News Corporation hit on revenues and beat on operating income and reiterated guidance. The numbers were good where they mattered at News Corporation with cable networks surprising to the upside on operating income. Time Warner was similar with operating income upside on margins and a better than expected advertising print. Time Warner's ad growth has significantly lagged the industry due to poor ratings so this is a good sign. Both companies also are buying back stock aggressively.

This afternoon we hear from CBS (NYSE:CBS) and tomorrow Disney (NYSE:DIS) brings the earnings season to a close. The conference call at CBS is likely to have discussion of early season network ratings and Disney's call will be focused on the Lucas film acquisition and what it means strategically.

Comcast, Charter Communications, Cablevision, Discovery Communications, DirecTV, News Corporation, and CBS are net long positions in the Entermedia Funds. Entermedia is a long/short equity hedge fund focused on media, entertainment, leisure, communications and related technologies. Steve Birenberg is co-portfolio manager of Entermedia, owns a stake in the funds' investment management company and has personal monies invested in the funds. Charter Communications, Discovery Communications, and CBS are widely held by Northlake Capital Management LLC, including in Steve Birenberg's personal accounts. Steve is sole proprietor of Northlake, a long only registered investment adviser.

This column was previously published by SNL Kagan on
No positions in stocks mentioned.
Entermedia is a long/short equity hedge fund focused on media, communic= ations, and related technologies. Steve Birenberg is co-portfolio manager o= f Entermedia, owns a stake in the Funds' investment management compan= y, and has personal monies invested in the Funds. CBS and Discovery Communi= cations are widely held by Northlake Capital Management, LLC, including in = Steve Birenberg's personal accounts. Steve is sole proprietor of Nort= hlake, a long only registered investment advisor.

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