By Nat Worden
Of DOW JONES NEWSWIRES
NEW YORK -(Dow Jones)- Comcast Corp. (CMCSA), the nation's largest cable operator, posted a 22.5% increase in third-quarter earnings, showing the enduring strength of the cable business, but remained mum on negotiations with General Electric Co. (GE) about taking a majority stake in entertainment conglomerate NBC Universal.
Comcast Chief Executive Brian Roberts declined to comment on the NBCU talks on a conference call with analysts, but he said the company will take a "disciplined approach" to pursuing acquisitions.
"While we can't comment on rumors, I would like to reinforce that we only look at opportunities in our core businesses that potentially can accelerate growth, make those businesses more profitable and differentiated, and give them the benefits of scale," Roberts said.
The talks between GE and Comcast are in the homestretch, with an announcement possible in the next week or two, according to people familiar with the situation.
In the transaction being considered--potentially one of the most transformative media deals in decades--Comcast would contribute cash and cable networks in return for an initial 51% of the expanded NBCU entity. GE, which now owns 80% of NBC Universal, would retain 49%. French telecom and media company Vivendi SA (VIV.FR), which owns 20%, would be bought out.
Critics have questioned whether NBCU fits with Comcast's core telecommunications business, and some have expressed concern that a deal for the media and entertainment giant could amount to a waste of the company's strong cash flow generation.
Its free cash flow--a closely watched metric for investors--rose 19.8% to $1.112 billion in the third quarter, while operating cash flow gained 2.7% to $3.326 billion. The company spent $250 million on share repurchases in the quarter, having restarted its buyback program earlier this year after it was halted in the midst of Wall Street's financial crisis last fall.
Comcast Chief Financial Officer Michael Angelakis said the company wouldn't use its stock as currency for any acquisitions "at these levels," and he said Comcast would continue to return value to shareholders through share buybacks and dividends.
The company's operating results displayed the enduring strength of the cable business amid rising competition and a stinging economic slump. Like its cable counterparts, Comcast continues to show revenue growth and solid cash flow generation, even as it loses basic video customers and sees its year-over-year growth slow in digital phone and high-speed Internet subscribers.
Despite the slowdown, a rebound in Comcast's high-speed Internet subscribers, compared to a worrisome slowdown in the second quarter, pleased investors.
"Market share of broadband in its footprint appears to have improved in quarter versus the telco competition," said Morgan Stanley analyst Benjamin Swinburne. "The stronger subscriber trends, however, may have come through greater discounting as revenue per customer came in lower than expected on all three services and overall."
The company added 361,000 high-speed Internet customers in the third quarter, more than five times the amount it added in the second quarter and a decline of just 5.5% from last year. In the second quarter, the Internet subscriber additions dropped by 77% compared to the year-ago period.
Comcast shares, down about 13% since news of the NBCU talks broke, slipped 8 cents to $14.43.
For the quarter ended Sept. 30, Comcast reported net income of $944 million, or 33 cents a share, up from year-ago earnings of $771 million, or 26 cents a share. Excluding a one-time tax benefit and finance charge, Comcast earned 28 cents a share, beating the average estimate of analysts polled by Thomson Reuters of 25 cents a share.
Comcast's revenue rose 3% to $8.802 billion, falling just shy of expectations for revenue of $8.850 billion.
Video subscribers declined by 132,000 in the quarter, reflecting mounting competition from telecommunications giants like Verizon Communications Inc. (VZ) and AT&T Inc. (T) offering rival broadband offerings in Comcast markets. Meanwhile, the recession, and the weakness it has brought in the housing market, is perhaps a larger drag on Comcast's subscriber performance.
It had 375,000 new voice customers in the quarter, down from 479,000 in the year-ago quarter.
Despite the slowdown, and increased promotional activity, Comcast's customers still increased their payments to the cable giant, shouldering price increases and buying new services. The company's average total revenue per video customer rose to $116.91 in the quarter, compared with $110.67 in the year-ago period. It added 1.067 million revenue-generating units in the period, down from last year's 1.131 million.
Comcast's ad revenue was down 16% for the quarter--a slight moderation in decline compared to the 20% it suffered in the second quarter.
-By Nat Worden, Dow Jones Newswires; 212-416-2472; nat.worden@dowjones.com