NEW YORK Comcast Corp (CMCSA.O) expects to lose more subscribers in 2009 due to stiffer competition from phone companies, and said it would not complete its share buyback program this year, pushing its shares down more than 5 percent.
While the largest U.S. cable operator raised its annual dividend by 8 percent to 27 cents a share, analysts said the increase was conservative relative to a 56 percent rise in Comcast's 2008 free cash flow -- a measure of cash generated by its operations after expenses have been paid.
"The shares are reacting to their capital allocation decision. We would have favored a return of capital through a share buyback rather than a dividend," said Chris Marangi, a portfolio manager at Gabelli & Co, which owns Comcast shares.
Comcast, which had suspended share buybacks last quarter due to the uncertain credit environment, said on Wednesday it would focus its cash on reducing its debt load.
In 2008, it spent $2.8 billion on buying back 141 million shares and around $500 million in paying out a dividend. A previously authorized share buyback program still had $4.1 billion left at the end of 2008.
Comcast Chief Financial Officer Michael Angelakis said on a conference call with analysts that Comcast's strategy for returning capital to shareholders in 2009 had shifted to dividends.
"I think, frankly, the economy has deteriorated further and really we are taking a step back and suspending the buyback, primarily to focus on using the free cash flow we are generating to modestly de-lever this year and meet the maturities we have," he said."
Comcast posted a sharper-than-expected slowdown in subscriber growth in the fourth quarter due to the recession and competition for customers with AT&T Inc (T.N) and Verizon Communications (VZ.N), which executives said now reach a fifth of Comcast's regions.
Comcast lost 233,000 basic video subscribers during the quarter, more than the loss of 117,000 expected by Sanford Bernstein analyst Craig Moffett.
MORE LOSSES IN 2009
The cable company said it expects video customer losses in 2009, but said its focus is on profitable growth rather than competing for market share.
"We remain focused on profitable and sustainable growth and while we expect continued video customer losses, we believe we will see penetration gains, albeit at a slower rate of growth, in our digital, high-speed Internet, digital voice and business services in 2009," said Angelakis.
Comcast added 247,000 digital video customers and 184,000 high-speed Internet subscribers but Moffett had been expecting additions of 466,000 digital subscribers and 284,000 Internet subscribers.
Phone subscriber additions, previously the growth engine, totaled 340,000 subscribers, compared with Moffett's estimate of 425,000.
Cable companies have been winning phone customers from companies but Comcast and its peers have started to see the same 'cord cutting' that the phone companies face as more households drop traditional phone lines for cell phones only.
Excluding a $600 million writedown of its stake in wireless company Clearwire Corp CLWR.O and other one-time expenses, its quarterly profit was 27 cents a share compared with the average Wall Street estimate of 22 cents, according to a poll by Reuters Estimates.
Net profit fell 32 percent to $412 million, or 14 cents a share compared with $602 million, or 20 cents a share in the year ago quarter. Revenue rose 7 percent to $8.765 billion during the quarter, beating the average Wall Street forecast of $8.63 billion.
Full year cash flow grew 56 percent to $3.7 billion. Chief Executive Brian Roberts said capital expenditures would fall in 2009 and the trend of growing free cash flow would continue.
Comcast met expectations of total average revenue per user which came in at $113.80 a month. Executives at the company have focused in recent quarters on improving this metric rather than chasing market share.
Shares of Comcast fell 5.43 percent to $12.19.
(Reporting by Yinka Adegoke; Editing by Derek Caney, Dave Zimmerman)