UPDATE 3-DirecTV profit beats, to buy back $3.5 bln shares

Thu Feb 18, 2010 4:21pm EST

* Q4 adj EPS $0.48 vs Wall Street view $0.40

* Added a net 119,000 U.S. subscribers

* Announces new share buyback of $3.5 billion

* Sees mid to high single digit revenue growth in 2010

* Shares close up 4.14 percent. (Updates shares, adds executive comment, outlook)

By Yinka Adegoke

NEW YORK, Feb 18 (Reuters) - U.S. satellite television operator DirecTV Group Inc (DTV.O) posted a better-than-expected quarterly profit and announced a $3.5 billion share buyback, sending shares up more than 4 percent.

The satellite company forecast 2010 revenue percentage growth in the "mid to high" single digit range and said it expects to add fewer subscribers than it did last year when it got a bump from a marketing partnership with AT&T Inc (T.N).

DirecTV added 119,000 net subscribers in the United States in the fourth quarter, less than the 301,000 it added in the period a year earlier.

Kaufman Bros analyst Todd Mitchell had forecast that DirecTV would add 200,0000 subscribers.

The company also announced a new share buyback of $3.5 billion as its free cash flow grew 40 percent to $2.4 billion.

"The thesis for owning DirecTV shares is they would decelerate sub growth, accelerate free cash flow growth leading to an equity shrink and that's what they've done," said Mitchell.

DirecTV will try balancing giving discounts to win subscribers from cable rivals while maintaining its premium brand image in a market that has become even more competitive, said Chief Executive Michael White, a former Pepsi executive who joined the company on Jan 1.

"We recognize that the industry has got a bit more competitive in the last six months, but it doesn't do any good to chase low quality subs," White told analysts on a conference call.

DirecTV has 18.6 million U.S. video subscribers, below cable company Comcast Corp's (CMCSA.O) 23.6 million and above fellow satellite operator DISH Network Corp (DISH.O), which has 14 million.

DirecTV (DTV.O) on Thursday reported adjusted profit of $454 million, or 48 cents a share, after excluding a pre-tax charge of $491 million related to its November merger with Liberty Entertainment.

Analysts on average were expecting profit to come in at 40 cents a share, according to Thomson Reuters I/B/E/S.

Including the tax charge, DirecTV swung to a net loss of 3 cents a share.

Revenue rose 13 percent to $5.98 billion.

DirecTV expects less revenue contribution from subscriber growth, but revenue could get a boost from growth in average revenue per user as people subscribe to more advanced products and services, said Chief Financial Officer Patrick Doyle.

The company will have better operating profit margins in 2010, Doyle said. DirecTV forecast operating profit growth in the "low teens" range.

DIRECTV M&A TALKS

DirecTV, chaired by cable veteran John Malone, was split off by Malone's Liberty Media last year and merged with Liberty Entertainment to create a larger company that includes several cable networks.

The creation of a newly independent DirecTV has fueled speculation that a big phone company like AT&T or Verizon Communications Inc (VZ.N) could buy the satellite provider.

Wall Street and investors have speculated that DirecTV might eventually split off its fast-growing Latin American operations. White said he has looked at options with "a couple of bankers," but believes that it could be better to keep the unit within the DirecTV family.

DirecTV Latin America saw strong growth in Venezuela, Colombia and Brazil, with net subscriber additions of 254,000 during the quarter. It has 4.6 million subscribers across Latin America.

White said the company will assess international expansion opportunities outside Latin America in emerging markets.

DirecTV shares closed up $1.31 at $32.96 on Nasdaq. (Reporting by Yinka Adegoke, editing by Dave Zimmerman and Robert MacMillan)

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