By Shalini Ramachandran and Anne Steele 

Charter Communications Inc. reported weak subscriber growth in the fourth quarter as the integration of the newly acquired Time Warner Cable proves to be a challenging process.

Charter still posted better-than-expected profit and revenue, as its broadband and business-services divisions boosted sales.

The second-largest cable company, which acquired rival cable operators Time Warner Cable and Bright House Networks in May, reported "pro forma" subscriber results as if those companies had been included in the year-ago quarter. The combined cable giant lost 51,000 residential video customers, compared to a pro-forma gain of 118,000 the year earlier, with the majority of heightened losses coming from the old Time Warner Cable footprint.

The company added fewer residential high-speed internet customers in the quarter -- 357,000 compared with 495,000 in the prior-year period. Net additions of voice subscribers slowed dramatically from 304,000 to 39,000 in the fourth quarter.

On an earnings conference call with analysts, Charter executives largely blamed the soft subscriber results on weakness in its legacy Time Warner Cable footprint. They said that resulted from overzealous promotions handed out under previous management a couple of years ago to boost subscriber rolls, such as a $10-a-month "limited basic" TV bundle and "double play" internet and TV for $45.

Charter Chief Executive Tom Rutledge said that Time Warner Cable had deployed 96,000 marketing promotions in the field, which is taking time to harmonize with Charter's pricing structure and, in the meantime, contributing to the elevated subscriber roll off as that promotional pricing ends. Still, the company raised its long-term synergy target to $1 billion of cost savings from the deals, up from $700 million, signaling its optimism.

While Wall Street analysts and investors were largely expecting weaker subscriber trends during the integration, Charter's customer results came in well below the estimates of several analysts, many of whom were expecting residential video customer growth.

MoffettNathanson analyst Craig Moffett noted that even subscriber results at Charter's legacy footprint, where its strategy has been deployed for some time, were "good, but not accelerating." Even average revenue per user there declined, due to continued interest from customers in its cheaper single-play internet product.

"Investors will naturally be considering whether the time has at last come to take some chips off the table," Mr. Moffett said.

Charter shares were down slightly in early afternoon trading at $324.44.

Charter shares have been on a tear over the past year and received a boost in January when The Wall Street Journal reported that wireless giant Verizon Communications Inc. was exploring a combination with the company and had made initial contacts with officials close to Charter.

Asked on the call about interest in deal making, Mr. Rutledge said "we don't speculate on M&A generally" but "we like our business."

Separately, Mr. Rutledge continued to sound a bullish note for Charter's prospects of launching a separate mobile offering next year with the help of an old reseller agreement with Verizon. Mr. Rutledge pushed back on recent comments by T-Mobile Chief Executive John Legere that the cable industry won't be able to compete on unlimited plans for wireless by using their current agreement with Verizon. "T-Mobile doesn't understand it and we are comfortable with the current pricing world of data," he said. "We think it'll work for us."

During the quarter, revenue from video -- the largest contributor to the top line -- rose 1.9% to $4.1 billion on a pro-forma basis, while internet revenue jumped 13% to $3.31 billion. Voice revenue, meanwhile, slipped 0.5% to $719 million.

Over all, on a reported basis, Charter earned $454 million, or $1.67 a share, compared with a loss of $122 million, or $1.21, a year before. On a pro-forma basis, revenue climbed 7.2% to $10.28 billion, lifted by residential revenue growth of 6% and commercial revenue growth of 12%.

Analysts were looking for $1 in per-share profit on $10.23 billion in pro-forma revenue, according to Thomson Reuters.

Write to Shalini Ramachandran at shalini.ramachandran@wsj.com and Anne Steele at Anne.Steele@wsj.com

 

(END) Dow Jones Newswires

February 16, 2017 14:03 ET (19:03 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.
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