NEW YORK – Cable television operator and sports team owner Cablevision Systems Corp. Tuesday posted a wider third-quarter loss, primarily from writing off the contract of New York Knicks basketball star Larry Johnson, who opted for early retirement before the season began.
The write-off forced Cablevision to cut its full-year cash flow estimate for the MSG unit, which includes Madison Square Garden, Radio City Music Hall and the N.Y. Rangers hockey team, as well as the Knicks.
But on the positive side, the company, which serves about 3 million cable customers in the New York area, raised its 2001 expectations for two major growth engines -- basic cable and high-speed data subscribers -- after cutting forecasts twice.
"We were pretty pleased with the performance of the cable operations," said Lehman Brothers analyst Lara Warner. "After cutting 2001 guidance twice, this comes as welcome news."
But she cautioned that the MSG operations presented a challenge for Cablevision. "People are starting to learn how many different divisions this company has," she said. "And MSG is going to be watched closely."
Hampered by back injuries in recent years, two-time All-Star Larry Johnson said last month he would retire. The Knicks reportedly agreed to pay him the remaining $29 million on his contract.
LOWER CASH FLOW
The third-quarter net loss widened to $77.1 million from $40.1 million a year earlier. Revenues slipped to $1.003 billion from $1.035 billion. Assuming the same portfolio of assets in both periods, revenues rose 7 percent. Over that time, the company sold cable operations in Ohio, Massachusetts and Michigan and bought operations in New York state.
Adjusted operating cash flow, which excludes depreciation, amortization and other one-time charges, fell 17 percent to $186.1 million, assuming the same portfolio of assets in both years.
Analysts prefer cash flow as a measure of performance because it excludes charges and expenses associated with upgrading systems and acquisitions.
Cablevision shares closed at $35.42, down $1, or nearly 3 percent, although analysts noted that shares had risen nearly 15 percent since Oct. 31, when it hit a theee-year low of $32.50.
The cable, telephone and high-speed Internet business posted an 11 percent increase in revenues and a 13 percent increase in cash flow on a pro-forma basis.
Cablevision expects basic cable subscribers to grow 1.3 percent in 2001, up from its October estimate of 0.75 percent to 1 percent. The company said more people have been signing up since Sept 11, when local broadcast signals in New York went down with the collapse of the World Trade Center.
"Cable is really the engine of growth for the company," said ABN Amro analyst John Martin. "And given the performance of the cable unit, I'm a little surprised shares are off."
The company expects to add 490,000 high-speed Internet subscribers in 2001 versus earlier expectations of 475,000.
LAGGING IN DIGITAL CABLE
On the digital cable front, Cablevision is well behind its peers. Digital cable allows many more channels and advanced services like video-on-demand and interactive television. Such services are expected to provide much of the growth for cable companies.
Cablevision introduced digital services in September and expects to have 40,000 to 50,000 subscribers by the end of the year.
By comparison, Comcast Corp. finished the third quarter with 2.1 million digital customers, Charter Communications Inc. with 1.95 million and Cox Communications Inc. with 1.2 million.
The MSG business posted a cash flow loss of $32.4 million, compared with a year-ago profit of $24.2 million, on an 11 percent revenue decline. It cited the Larry Johnson write-off and weaker attendance at Madison Square Garden and Radio City.
Cablevision reduced its full-year cash flow estimate for the unit to between $45 million and $50 million from $80 million.
At the Rainbow Media Group Inc. properties, which include the American Movie Classics, Independent Film Channel and Bravo cable channels, revenues rose 20 percent, while cash flow increased 17 percent on a pro-forma basis.
Cablevision expects Rainbow's revenues to grow at least 16 percent in 2001, compared with earlier guidance of 14 percent to 16 percent. The company also raised its cash flow growth estimate for the unit to 17 percent from an earlier forecast of 14 percent to 16 percent.
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