DirecTV Group Q4 profit falls as costs rise

Tue, 02/10/2009 - 7:35am
Deborah Yao, AP Business Writer

The DirecTV Group Inc., the nation's largest satellite TV provider, on Tuesday reported a 5 percent decline in net income for the fourth quarter, even as revenue soared, because higher customer acquisition costs and interest expenses ate into the bottom line.

But while many captains of the industry are fighting a largely losing battle against economic headwinds, DirecTV Group remains a steady ship with higher customer additions, a cancellation rate that has remained steady in this downturn and a 20 percent increase in free cash flow. It was able to raise prices, as well.

El Segundo, Calif.-based DirecTV is the second pay-TV provider to report for the fourth quarter, and Wall Street has been anxiously looking for the economy's impact on the sector.

"DirecTV looks, at least up to now, positively immune," said Sanford Bernstein analyst Craig Moffett in a research note. While some companies such as Wal-Mart benefit in this economy, "a great many have lost ... but precious few have remained essentially untouched."

People still aren't giving up their subscriptions, and DirecTV's focus on the most creditworthy customers, its slate of high-definition (HD) channels and exclusive sports programming like NFL Sunday Ticket so far has sheltered the company from a worse fallout.

Shares of DirecTV were up 7 cents to $22.65 in morning trading.

In the fourth quarter, DirecTV earned $332 million, or 32 cents per share, compared with $348 million, or 30 cents, in the same quarter a year earlier. DirecTV had 10 percent fewer average shares outstanding the just-concluded quarter after buying back shares.

Revenue rose by 9 percent to $5.31 billion, propelled by higher subscriptions and prices.

Analysts surveyed by Thomson Reuters were expecting a 33-cents-per-share profit on revenue of $5.32 billion, on average.

Operating income before depreciation and amortization rose 11 percent to $1.22 billion. Free cash flow rose to $432 million from $361 million.

DirecTV added 301,000 net new customers in the quarter, up 9.4 percent, for a total of 17.6 million subscribers. Analysts were expecting 224,000. Meanwhile, customer churn was flat year-over-year at 1.42 percent.

The average monthly revenue per subscriber was up 3.5 percent to $90.46 due to higher subscription prices and increases in HD and digital video recorder (DVR) fees, which more than offset increased promotions, lower upfront equipment fees and other factors.

Breaking out DirecTV's Latin America operations, revenue was up 15 percent to $572 million. Operating profit nearly doubled to $104 million as costs fell. The average monthly revenue per subscriber decreased 4 percent to $50.09 due to unfavorable exchange rates in Brazil. DirecTV added 160,000 net new customers, down 20 percent from a year ago.

DirecTV serves 3.88 million subscribers in the region through subsidiaries Sky Brazil and PanAmericana. It also holds a 41 percent stake in Sky Mexico.

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