NBCUniversal Earnings Rise Despite Lower Film Unit Profit

Cable giant and parent company Comcast beats estimates for earnings and broadband subscriber growth, boosting the stock.

Cable giant Comcast on Thursday reported improved second-quarter financials, including a higher profit at entertainment arm NBCUniversal despite a big profit drop at its film unit.

Helping to kick off earnings season for big Hollywood players, NBCUniversal, led by CEO Steve Burke, posted adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), the profitability metric the company uses, of $2.16 billion, up 4.2 percent from the year-ago period. The improved bottom line came despite a 0.1 percent revenue decline to $8.31 billion.

"NBCUniversal’s performance was highlighted by continued momentum in affiliate revenue at our cable networks business, and Telemundo presented its first-ever FIFA World Cup, which set multiple records for the network," said Comcast chairman and CEO Brian Roberts. "Additionally, we are excited about the new attractions that we opened at each of our theme parks during the quarter, and pleased with the theatrical performance of Jurassic World: Fallen Kingdom. Overall, our successful results in the first half of 2018 underscore the strength we see across Comcast NBCUniversal.”

Wall Street will look for further commentary from Roberts on why the cable giant last week bowed of the bidding showdown for 21st Century Fox with Walt Disney and the company’s confidence in sealing a deal for European pay TV giant Sky, which reported its latest financials earlier in the day.

Shortly after Fox, which owns a 39 percent stake in Sky, recently boosted its offer for full control of the company, Comcast raised its bid to $34 billion, giving it the edge for now.

Some analysts have suggested Fox may not continue bidding for Sky. Many expect a final decision on that front only after Friday’s shareholder meetings, in which Fox and Disney investors will vote on the companies’ $71.3 billion mega-deal.

“We do think there is a better than 50 percent chance that Comcast's £14.75 per share bid (or $34 billion) for Sky PLC emerges as the winning bid,” said Buckingham Research Group analyst Matt Harrigan.

NBCUniversal’s film unit had Jurassic World: Fallen Kingdom as its key release in the second quarter, with Blockers and Breaking In also among the theatrical titles, compared with the year-ago period that had such strong performers as Fate of the Furious. The timing of the latest quarter's releases also affected results, the firm said.

Film unit revenue decreased 20.2 percent to $1.7 billion in the quarter, "reflecting lower theatrical, home entertainment, and content licensing revenue," Comcast said. Theatrical revenue fell 35.5 percent, while home entertainment revenue dropped 32.8 percent from the prior-year period, which included Fifty Shades Darker, Sing, Split and Get Out, partially offset by Fifty Shades Freed in the latest period. All in all, adjusted film unit EBITDA fell 52.1 percent to $138 million in the second quarter on the lower revenue, partially offset by lower programming and production costs.

Cable networks unit revenue increased 8.2 percent to $2.9 billion in the quarter on higher distribution, content licensing and advertising revenue. "Distribution revenue increased 8.7%, primarily due to contractual rate increases and the timing of contract renewals, partially offset by a moderating decline in subscribers at our cable networks," the company said. Advertising rose 3.6 percent thanks to higher rates, partially offset by ratings declines. Adjusted EBITDA increased 12.5 percent as higher revenue was only partially offset by higher operating costs.

Broadcast TV unit revenue rose 6.7 percent to $2.4 billion in the second quarter as advertising increased 9.2 percent, driven by higher rates and the World Cup, and distribution and other revenue jumped 16.8 percent due to higher retransmission consent fees. That was partially offset by lower content licensing revenue. Adjusted broadcast TV EBITDA was unchanged at $417 million as the revenue gain was offset by increased programming and production costs associated with the World Cup.

Burke said on Thursday's earnings call that while much discussion these days focuses on streaming services, such as Netflix and Amazon, the vast majority of TV viewing continues to be on linear TV, particularly for big events, where NBCUniversal has a strong presence with the likes of the Olympics and the World Cup.

Comcast said that at its cable systems, total customer relationships increased by 182,000 to 29.8 million in the second quarter. It lost 140,000 video subscribers, but added 260,000 high-speed internet customers — the company's best second-quarter result in 10 years and ahead of analysts' projections. Roberts on the earnings call said that the video losses came amid "continued competition from virtual" pay TV providers.

Roberts on Thursday though lauded Comcast's X1 platform for "aggregating the best content from linear TV to third-party apps like Netflix, YouTube, Pandora and more." It also recently added Fandango voice-activated movie ticketing, he highlighted, vowing that Comcast would unveil "more integrations" with X1 in the coming months.

The exec also highlighted that the strong broadband gains were in line with management's past comments on focusing more on broadband connectivity in the age of online video usage growth and cord-cutting. "Times are changing," said Roberts, adding that people are more and more relying on faster broadband. Comcast Cable boss Dave Watson added that his team has also put more focus on broadband-only subscribers than in the past.

Overall, Comcast reported second-quarter earnings of 65 cents per share, beating the Wall Street consensus estimate by 5 cents. Quarterly revenue of $21.7 billion came in slightly below estimates. Comcast's stock rose more than 3 percent before the stock market opened as investors cheered the better-than-expected earnings and broadband subscriber figures.

Many on Wall Street before Thursday's earnings conference call expressed hope that Comcast management would allay some investor fears that the company could pursue further big deals after bowing out of the Fox hunt.

Said Jefferies analyst John Janedis: "Following Comcast's announcement to walk away from Fox, we expect the dust to settle and that M&A driven volatility should subside. Shares remain attractively valued, in our view, with fundamentals stable to improving. Given a re-focus on fundamentals, we expect multiple expansion and add Comcast to our franchise pick list. The Sky outcome will not be a thesis changer, in our view."