Comcast Corp. (CMCSA) reported excellent fourth quarter 2010 financial results, which surpassed the Zacks Consensus Estimate. In a significant drive to raise its shareholders’ wealth, the board of directors has raised the annualized dividend rate by 19% to 45 cents per share.
Additionally, the board of Comcast declared its intention to speed up the share buy-back program and may repurchase the remaining $2.1 billion share under the existing authorization by the end of 2011. This will be an increase of 75% year over year.
GAAP net income for the fourth quarter 2010 was $1,018 million or 36 cents per share compared with $955 million or 33 cents per share reported in the prior-year quarter. Adjusted EPS in the reported quarter was 35 cents, which was well above the Zacks Consensus Estimate of 32 cents.
Better-than-expected results were due to a solid customer growth, an improving advertising market and continued strength in Business Services.
Revenue
In the fourth quarter of 2010, total revenue was $9,721 million, up 7.2% year over year. This was also better than the Zacks Consensus Estimate of $9,555 million. During the quarter, all the three segments witnessed revenue growth. Advertising revenues flourished in the reported quarter, reflecting 29% year-over-year growth.
Operating margin was 20.7% compared with 20.0% in the prior-year quarter. Operating Income increased approximately 10.8% year over year to $2,013million, attributable to solid operating results in the Cable and Programming segments.
Share Repurchase and Dividend
During the fourth quarter, Comcast repurchased 15.9 million of its common shares for $300million. In fiscal 2010, Comcast also paid cash dividends totaling $1.1 billion.
Balance Sheet and Cash Flow
Cash and marketable securities, at the end of the fiscal 2010, was $5,984 million compared with $671 million at the end of fiscal 2009. Total debt, at the end of the fiscal 2010, was approximately $29,615 million compared with $27,940 million at the end of fiscal 2009.
Excluding the impact of Economic Stimulus Packages, free cash flow during the fourth quarter was $1,121 million compared with $768 million during the prior-year quarter. At the end of fiscal 2010, debt-to-capitalization ratio was 0.40 compared with 0.39 at the end of fiscal 2009.
During the reported quarter, Comcast generated $11,179 million of cash from operations versus $10,281 million in the year-ago quarter. Capital expenditure in the fourth quarter was nearly $1.5 billion, down 4.8% year over year.
Cable Segment
Revenues from the Cable segment were $9,155 million, up 6.9% year over year. Operating cash flow from this segment was $3,775 million, up 8.7% year over year. This upside was mainly driven by growth across Video, High-Speed Internet and Voice residential services.
At the end of fiscal 2010, Comcast had 16.988 million (up 6.6% year over year) High-Speed Internet customers; 8.610 million (up 12.9% year over year) Voice customers; 22.802 million (down 3.2% year over year) Video customers and 19.740 million (up 7.2% year over year) Digital Video customers.
Programming Segment
Revenues from the Programming segment were $419 million, up 13.6% year over year. This was mainly due to higher affiliate and advertising revenues. Operating cash flow from this segment was approximately $46 million, up 1.6% year over year.
Corporate & Other Segment
Revenues from the Corporate & Other segment were $147 million, up 10.5% year over year. Operating cash flow from this segment was a loss of $105 million in the quarter compared with a loss of $108 million in the year-ago quarter.
Our Take
The company has become the largest integrated content development and distribution company of the U.S. after completing the acquisition of NBC Universal. We also remain very optimistic about the company’s diversification, network upgrade and innovative product offering strategies. In the last one year, the company posted strong revenues and robust free cash flow.
However, Comcast faces severe competition from both telecom and satellite service providers that started offering subscription TV services at a low price. Verizon Wireless (VZ) with FiOS network and AT&T (T) with U-Verse network are likely to make the market highly competitive. Recent growth of online video streaming companies such as Netflix Inc. (NFLX) and Hulu have become major threats to the company.
We maintain our long-term Neutral recommendation on Comcast. Currently, it has a Zacks#3 Rank, implying a short-term Hold rating on the stock.
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