Fat ‘Cast eyes acquisitions

Comcast shows fresh appetite for tie-ups amid robust Q2

Comcast, Wall Street media watchers’ newest darling, turned in another bravura performance Thursday, announcing second-quarter earnings and subscriber gains that broadly beat analysts’ expectations and indicated it will seriously be considering “opportunistic” acquisitions that will improve the company’s future growth prospects.

Comcast impressed the Street with the swift recovery of its recently acquired and subperforming AT&T Broadband systems and its ability to gain basic cable subscribers at a time when most of its rivals lost ground in the seasonally slow three-month period. Company picked up 12,000 basic subs in the quarter (compared with a loss of 133,000 subs in the same period last year) and 162,000 digital customers.

CEO Brian Roberts was jubilant about the speed with which Comcast is integrating the former AT&T systems with those of Comcast. “We thought it would take three years to get this type of cash flow improvement,” Roberts told a Thursday earnings conference call, noting that “eight months in, we’re about halfway there.”

With the faster-than-expected financial turnaround, all eyes are rightly focused on what Roberts will do with his potent 21 million home national cable footprint and seemingly bullet-proof books.

In recent weeks Roberts’ emboldened cable titan has found itself in the spotlight of showbiz speculation about Vivendi Universal Entertainment, after the Gallic company persuaded the Philadelphia-based cabler to consider making an offer. Comcast’s distribution clout could make it a prime partner in a Viv U bid.

Many possible targets

While its team of consultants pour over the VUE books, there are numerous other possible targets, including Cablevision’s stake in the Fox Regional Sports networks, Disney’s stake in their jointly owned E! Entertainment and possibly even Disney itself.

Roberts declined to comment directly on his company’s interest in VUE but noted that Comcast has always “shown a real discipline as both a buyer and a seller … (I) think we owe it to our shareholders to take advantage of our new platform and radically changing balance sheet to evaluate new opportunities … and to see how we can best create value for Comcast.” Roberts vowed that the company will maintain the same commitment to paying down debt while keeping an eye on the future.

Just how big its appetite is will depend on its success working down its $27.2 billion debt load.

Comcast continues to hold $1.5 billion in AOL Time Warner stock plus a 21% interest in Time Warner Cable. “While we will pursue avenues to monetize positions as soon as possible, we are also open to any solution that fits our strategic goals,” chief financial officer John R. Alchin said. He said that these stakes, plus other non-strategic partnerships on its books (including a forthcoming stake in Liberty Media), are valued at $10 billion, which adds to company’s financial strength and flexibility.

Comcast, which sold its controlling stake in home shopper QVC to Liberty last month for cash and stock, is expected to take a $5.5 billion gain on the sale after it pays over $2 billion in taxes.

Revs rise 10.2%

Overall, consolidated revenue were up 10.2% in the quarter to $5.7 billion with operating income of $611 million. Net loss for the quarter was $22 million, compared with a loss of $210 million in the same period a year ago. More critically to many analysts, Comcast posted big acceleration in operating cash flow, with a 35.7% jump over a year ago to $1.6 billion with a fat 36.5% margin.

Comcast’s content businesses, including minority stakes in E! Networks and wholly owned Golf Channel and Outdoor Life Network, contributed to some $205 million in revenues, a 27% increase over the year-ago quarter, with operating cash flow of $15 million, down slightly over last year due to increased overhead spending.

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