Cablevision loses customers, warns of rising costs

Thu Feb 28, 2013 5:46pm EST

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(Reuters) - Cablevision Systems Corp (CVC.N) on Thursday put costs related to Superstorm Sandy at $100 million and hinted its cash flow may decrease this year as programming costs rise, news that sent its shares down 10 percent.

Analysts had hoped the company was set for a better financial performance this year, coming off what Cablevision considered an investment year when it kept prices steady and put money toward faster Internet service. The New York-area cable provider has also been grappling with increased competition from rival Verizon FiOs (VZ.N).

Cablevision shares closed $1.48 lower, down 10 percent at$13.99 per share.

Cablevision executives said they expected programming costs to rise about 12 percent this year. Chief Financial Officer Gregg Seibert told analysts on a conference call he expects pressure on operating cash flow in the first quarter, but sequential cash flow may improve in the second quarter.

Capital expenditures will remain "at elevated levels" this year, though they have been budgeted below the 2012 level, he added.

Cablevision is still dealing with fallout from Superstorm Sandy, which hit the U.S. Northeast, Cablevision's main operating region, at the end of the third quarter. The storm caused widespread flooding and power outages, disrupting cable and telephone services and delaying some initiatives.

Cablevision had promised to give customers a rebate for disrupted cable service. The company said on Thursday it paid out $33.2 million in credits and that its consolidated adjusted operating cash flow decreased about $110 million because of storm costs.

ISI analyst Vijay Jayant said that while the storm had a major impact on Cablevision, the stock was selling off on the company's comments about its financial health in 2013.

"While Sandy impacted the quarter, the stock is reflecting some of the commentary about operating fundamentals. They suggested longer-term growth rates of free cash flow had maybe been reduced," Jayant said.

Jayant noted that Cablevision also did not repurchase shares in the fourth quarter and did not plan to buy back any stock in the first quarter, decisions that could weigh on the share price.

In early February, Cablevision said it was selling its Optimum West business, formerly known as Bresnan, to Charter Communications (CHTR.O) for $1.625 billion. The deal is expected to close in the third quarter and Seibert said the net proceeds would reduce Cablevision's overall leverage.

LAWSUIT

CEO Jim Dolan made pointed comments on Thursday related to a lawsuit Cablevision filed on Tuesday against Viacom. Cablevision has accused Viacom Inc (VIAB.O) in an antitrust lawsuit of forcing it to pay for more than a dozen low-rated cable networks in order to get access to Viacom's more popular channels such as Nickelodeon, MTV and Comedy Central.

"Viacom's practice of forcing distributors to carry more than a dozen lesser watched channels ... in order to carry its must-have networks is an abuse of its market power and a violation of federal antitrust laws," Dolan said, adding that the practice "causes our customers' cable prices to rise, and we believe it needs to be stopped."

Viacom did not immediately respond to a request for a comment on Dolan's views.

The case represents the latest flare-up in the contentious relationships between distributors and program makers.

Industry observers will watch to see if the lawsuit could disrupt the model of selling bundles of cable channels to operators, a common practice employed by Viacom and its media company peers in the $97.6 billion cable industry.

RESULTS

Cablevision said it lost 50,000 net video subscribers in the quarter, much higher than a loss of 12,000 that Wall Street analysts were expecting, said Brean Capital analyst Todd Mitchell.

The cable provider still posted higher quarterly net income, due to a $200 million payment from Dish Network Corp (DISH.O) it received as part of a legal settlement. In October, Dish, the second-largest U.S. satellite operator, settled a 4-year-old breach-of-contract lawsuit with Cablevision and AMC Networks over a joint HD channel venture called "Voom HD." Dish agreed to pay $700 million in cash to the two New York-based companies, which are both controlled by the Dolan family.

Cablevision posted net income for the fourth quarter of $116 million, or 45 cents per share, compared with net income of $60 million, or 22 cents per share, in the fourth quarter a year ago.

Revenue fell to $1.66 billion from $1.69 billion a year earlier, just missing Wall Street expectations of $1.68 billion, according to Thomson Reuters I/B/E/S.

(Reporting By Liana B. Baker; Editing by Nick Zieminski, Maureen Bavdek and Dan Grebler)

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