Europe a Surprising Growth Driver for Liberty Global Group

By Markets Fool.com

Image source: Getty Images.

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Not long ago, it seemed like Liberty Global Group's (NASDAQ: LBTYK) expansion into Latin America would soon have it displacing Europe as the telecom, cable and broadband provider's key market. But third-quarter results released after the market closed on Thursday show that Europe remains the company's bedrock while its efforts in Latin America flounder. Here are the highlights investors should know from the quarter.

Liberty Global Group results: The raw numbers

Metric

Q3 2016 Actuals

Q3 2015 Actuals

Growth (YOY)

Revenue

$5.21 billion

$4.60 billion

13.3%

Operating Cash Flow

$2.4 billion

$2.2 billion

10.2%

Free Cash Flow

$519.0 million

$770.3 million

(32.6%)

Source: Liberty Global Group Q3 2016 earnings report.

What happened this quarter?

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The results above encompass the entire business, including Latin America, but the business is generating most of its cash from Europe. And it's in that mature market that growth is strongest.

  • 257,000 revenue generating units (RGUs) were added in the third quarter, dominated by 97,000 RGUs added by Virgin Media.
  • Fixed-line RGUs were 26 million unique customers with 54 million subscription services. That bundling of broadband, video, and phone has been widely adopted, and helps drive organic revenue growth for Liberty Global.
  • Management is targeting the addition of 5.6 million to 6.3 million new home customers by the end of 2016 through a new build program that's expanding the company's reach.
  • On the wireless side, Liberty Global had 6.8 million subscribers at the end of the quarter, a gain of 65,000 in the last three months.

What management had to say

Europe isn't a high-growth market, but management is focused on generating cash from the business right now, and the strategy is working. Revenue from Europe was up just 2% in the quarter, but operating cash flow excluding Ziggo was up 5%, and operating income jumped 60% to $764 million.

The Latin American business, though, has been a drag on results; the company has struggled with competitive pressure and mixed economic performance in the region. Revenue there fell 1% in the quarter to $894 million, and the company hadnegative adjusted free cash flow of $39 million. Management is hoping to turn the business around with cost cuts in coming years, so investors will want to keep an eye on the progress.

Looking forward

A few years ago, it would have seemed crazy to think that Europe is where the operational growth and stability is for Liberty Global, not Latin America.But that's definitely the case, and management has been able to expand offerings for individual consumers, and grow the business slowly but surely.

For the company to take the next step, it needs to achieve growth in Latin America, but that's uncertain right now. Watch for potential improvements in the region in coming quarters, because that's where the next opportunity lies. And in the meantime, shareholders can take comfort that its core European business is churning out cash like crazy.

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Travis Hoium has no position in any stocks mentioned. The Motley Fool recommends Liberty Global. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.