Comcast Profit Falls in Spite of Customer Additions

Comcast Corp. (CMCSA) Thursday said fourth-quarter profit fell 69 percent on a drop in investment gains and a higher tax rate, even as it added high speed data and digital phone customers.

The board of directors approved an additional $5 billion stock buyback program, which Wall Street analysts applauded.

Investors sent shares 1.6 percent lower in pre-market trading as some were disappointed over its financial guidance of a 10 percent to 11 percent cash flow growth in 2006, hurt by the costs of deploying new digital phone services.

"The company will need to articulate the sustainability of a double-digit growth model and when it expects (digital phone) to contribute not just to unit growth, but financial growth," UBS analyst Aryeh Bourkoff said.

The top U.S. cable operator reported a quarterly net profit of $133 million, or 6 cents per share, down from from a profit of $423 million, or 19 cents per share, a year earlier.

The big decline resulted from a drop in investment and other income and an increase in the effective tax rate, the company said. Investment and other income fell to $58 million in the 2005 quarter, from $553 million in the 2004 quarter.

Excluding items for both years, the company posted a profit of $186 million, or 9 cents per share, compared with $91 million, or 4 cents per share, in the year-earlier period.

Revenue rose 9.2 percent to $5.7 billion.

"Across the board, in terms of customer growth, they beat all of our numbers," said Thomas Eagan, vice president of Oppenheimer Research. "Financially, they were strong."

He added, "It's always hard to balance customer and financial growth."

The company added 40,000 net additional basic video subscribers, ending the year with 21.4 million customers.

It added 378,000 net new high speed Internet subscribers, ending the year with 8.5 million subscribers.

"Despite all the huge amount of advertising and rhetoric from the (phone) companies, they're having to heavily discount the (high speed Internet service) business to get the momentum that we have," John Alchin, chief financial officer of Comcast, said in a phone interview.

Comcast also added 79,000 net new phone customers and ended 2005 with 1.3 million customers. It gained 134,000 digital phone customers and shed 55,000 traditional phone subscribers in the quarter.

Looking ahead, the company expects full-year 2006 revenue to rise by 9 percent to 10 percent. It expects cable operating cash flow to rise by 10 percent to 11 percent.

"Their revenue growth guidance is considerably below the growth you're seeing at Time Warner and Cablevision, both of which are now in the ramp-up phase of (digital phones)," said Craig Moffett, an analyst at Sanford C. Bernstein.

Comcast expects to add about 3.5 million net new customers who take one product, also known as an RGU, revenue generating unit.

Full-year 2006 capital expenditures are expected to be on par with 2005, or around $3.5 billion.

Comcast shares, which are down 13.6 percent in the last year, are trading at decade lows as fears of a price war with satellite television operators and phone companies.

"Despite all the concerns about competition, I can't see who wouldn't like these results," Eagan said.

Although cable has generally ceded some high speed Internet service marketshare to phone companies such as Verizon Communications Inc. (VZ), Eagan said the cable industry has been able to maintain profits growth.

"I'd rather cede marketshare at $40 per month, than increase marketshare at $30 or less," Eagan said.

Verizon this month said it added 613,000 net new high speed Internet customers, a record high for the cable and phone industry. About half of the gains came from low price promotions, the company earlier said.

Comcast shares fell 44 cents to $27.55 on Inet, from a close of $27.99 on Wednesday on the Nasdaq.