DIRECTV (DTV), the largest satellite TV operator of the U.S., declared brilliant first-quarter of 2011 financial results today. The solid result was the combined effect of a double-digit revenue growth, significant margin expansion, and better-than-expected net customer addition.
Management’s strategy to target high-end customers paid-off well as the demand for the company’s HD channels and digital-video recording services sky rocketed in the reported quarter.
During the reported quarter, DIRECTV spend $1.41 billion to repurchase its own shares. Management is also confident that the company’s full-year EPS will jump to $5.0 in 2013 from $2.3 in 2010.
First-quarter 2011 total revenue came in at $6,319 million, an improvement of 13% year over year, surpassing the Zacks Consensus Estimate of $6,220 million. This was primarily attributable to massive subscriber growth in the U.S. and Latin America regions, as well as average monthly revenue per subscriber (ARPU) growth.
Quarterly GAAP net income was $674 million or 85 cents per share compared with a net income of $558 million or 60 cents per share in the year-ago quarter. First-quarter 2011 EPS of 85 cents was miles ahead of the Zacks Consensus Estimate of 71 cents.
Quarterly operating profit before depreciation & amortization (OPBDA) was $1,363 million, up 4.4% year over year. Operating profit in the first quarter of 2011 came in at $921 million, up 14% year over year, primarily due to gross profit associated with higher revenues, partially offset by an increase in subscriber acquisition costs.
During the first quarter of 2011, DIRECTV generated $1,309 million of cash from operations compared with $1,504 million in the prior-year quarter. Free cash flow (cash flow from operations less capital expenditures) in the reported quarter was $665 million compared with $1,031 million in the year-ago quarter.
At the end of the first quarter of 2011, DIRECTV had $4,295 million of cash & cash equivalents and $14,121 million of outstanding debt on its balance sheet compared with $1,502 million of cash & cash equivalents and $10,510 million of outstanding debt at the end of fiscal 2010.
DIRECTV U.S. Segment
Quarterly total revenue was $5,145 million, up 8% year over year, primarily due to strong ARPU growth and larger subscriber base. Quarterly ARPU increased 3.9% to $88.79. Quarterly operating profit before depreciation & amortization increased 4% to $1,363 million and operating profit increased 14% to $921 million.
Average monthly subscriber churn rate in the reported quarter was 1.50%, slightly above 1.48% in the prior-year quarter. Quarterly net subscriber addition was 184,000 compared with 100,000 in the year-ago quarter. As of March 31, 2011, DIRECTV U.S. had 19.407 million subscribers, up 4% year over year.
DIRECTV Latin America Segment
Quarterly total revenue was $1,114 million, up 43% year over yearresulting from continued strong subscriber growth including a significant increase of 93.2% in first- quarter net subscriber additions of 427,000. Quarterly ARPU increased 11.7% to $61.69due to price increase and higher sales of HD and DVR services. Quarterly operating profit before depreciation & amortization increased 57% to $384 million and operating profit jumped 74% to $219 million.
Average monthly subscriber churn rate in the reported quarter was 1.87% compared with 1.93% in the prior-year quarter. As of March 31, 2011, DIRECTV Latin America had approximately 6.235 million subscribers, up 29.7% year over year.
Recommendation
We maintain our long-term Neutral recommendation on DIRECTV. Currently, it holds a short-term Zacks #3 Rank (Hold) on the stock.Within the satellite TV industry, DIRECTV is facing competition from its nearest rivalDISH Network Corp. (DISH). Moreover, the U.S. telecom giants, AT&T (T) and Verizon Wireless (VZ) are increasingly rolling out their fiber-based network in order to provide video services.
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