August 6, 2008 / 11:55 AM / 11 years ago

UPDATE 2-Time Warner Cable 2nd-qtr profit up, cuts outlook

(Adds share decline, analyst, CFO comments, byline)

By Yinka Adegoke

NEW YORK, Aug 6 (Reuters) - Time Warner Cable Inc TWC.N forecast full-year profit below expectations on Wednesday, and said the weak economy is hurting advertising revenue, sending its shares down 5 percent.

The outlook overshadowed stronger-than-expected second-quarter results as the No. 2 U.S. cable television operator took Internet and phone subscribers from competitors.

“Due to continued under-performance in our high-margin advertising business resulting from softness in the overall economy, we now believe that our full year adjusted OIBDA growth rate will likely be towards the low end of our outlook range,” Chief Financial Officer Rob Marcus told analysts on a conference call.

The company forecast adjusted OIBDA, or operating income before depreciation and amortization, rising 9 percent to 11 percent.

Quarterly net profit rose 2 percent, and results topped Wall Street expectations by 2 cents per share.

Time Warner Cable cut its forecast for 2008 earnings by 15 cents per share to a range of $1.10 to $1.15, citing financing and other costs from its planned separation from parent Time Warner Inc TWX.N.

Analysts, on average, expected full-year profit of $1.27 per share, according to Reuters Estimates.

Time Warner Cable is 84 percent owned by media conglomerate Time Warner Inc. In May, parent Time Warner said it would spin off the cable unit as a completely stand-alone business, paying out a one-time dividend of about $10.9 billion to both companies’ shareholders.

“The second half of this year is going to be key when the telcos ramp up on marketing and promotions that are going to create a lot of pressure on ARPU (average revenue per user),” said Tuna Amobi, an analyst at Standard & Poor’s.

Time Warner Cable sold 20 percent more new services than it did a year ago — adding 201,000 high-speed Internet subscribers and 251,000 phone subscribers as it ramped up marketing.

It also added 7,000 commercial Internet subscribers and 6,000 commercial digital phone subscribers.

Six analysts polled by Reuters, on average, looked for 174,000 Internet additions and 263,0000 phone additions.

Time Warner Cable’s Internet subscriber additions were twice the combined net additions of AT&T Inc (T.N) and Verizon Communications Inc (VZ.N) which totaled about 100,000 during the quarter.

The company now provides high-speed Internet access to one in three homes that its cable systems pass but still sees more growth.

“We’re still not seeing any indication that we’re reaching any sort of penetration cap,” said Marcus, the CFO.

Net profit rose to $277 million, or 28 cents a share, from $272 million, or 28 cents a share, a year earlier.

Excluding special items, profit was 34 cents a share. On that basis, it beat the analysts’ view of 32 cents a share, according to Reuters Estimates.

Revenue rose 7 percent to $4.3 billion.

The New York-based cable operator lost 9,000 basic video subscribers during the quarter, better than a loss of 57,000 a year ago. It added 200,000 digital video subscribers versus 184,000 a year ago.

Analysts looked for a loss of 33,000 basic subscribers and an addition of 167,000 digital subscribers.

“The numbers were impressive,” said Tom Eagan, an analyst at Collins Stewart. He said the Los Angeles and Dallas cable systems, which the company seemed to find difficult to run soon after buying them in 2006, are now starting to deliver good results and helping to boost profit margins.

Time Warner Cable joined Comcast Corp (CMCSA.O) and Cablevision Systems Corp CVC.N in outperforming the phone companies during the second quarter — easing concerns on Wall Street that cable would lose subscribers to new advanced video and super-fast Internet offerings from both Verizon and AT&T.

The stock fell $1.56 to $28.34 on the New York Stock Exchange. (Additional reporting by Franklin Paul, editing by Gerald E. McCormick/Jeffrey Benkoe)

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