Comcast Results Top Expectations as Cable Giant Preps for Wireless Entry -- Update

Comcast Corp.'s first-quarter results offered a glimpse into why the cable giant is jumping into the cutthroat wireless business: Consumers don't want a landline phone anymore, limiting the appeal of its lucrative "triple play" bundles.

The company lost 5,000 voice customers in the quarter, compared with an addition of 102,000 in the year-ago quarter. Among just residential voice customers, the decline was even more stark with a loss of 27,000.

Offering wireless service will present a new way for Comcast to encourage package upgrades and further diversify its business. Earlier this month, Comcast unveiled a mobile offering for any customer that subscribes to at least its internet service, debuting unlimited data plans that in some cases undercut rivals.

While many investors have been focused on the company's upcoming entry into the wireless business, Comcast still reported better-than-expected financial results in the first quarter. Its NBCUniversal arm posted strong earnings, buoyed by its filmed entertainment unit.

On the cable side, Comcast added video and high-speed internet customers, though additions slowed from the prior-year quarter. The cable company added 42,000 residential and business video customers, compared with the 53,000 it added in the prior-year quarter. It added 429,000 broadband customers in the quarter compared with 438,000 a year earlier.

Overall, net income rose to $2.6 billion, or 53 cents a share, up from about $2.1 billion, or 43 cents a share, a year ago. Revenue grew 8.9% to $20.5 billion.

Revenue and profit exceeded estimates from analysts, who were projecting earnings of 44 cents a share on $20.1 billion in revenue, according to Thomson Reuters. Comcast shares rose 2.9% to $39.91 in midmorning trading.

Comcast's bottom line was helped by a decrease in effective income-tax rate from the year earlier due to a new accounting method it adopted. It also had favorable settlements of some state tax audits, which resulted in a tax benefit. Guggenheim Securities analyst Michael Morris estimated the tax benefits resulted in an earnings-per-share boost of 4 cents.

As it seeks to highlight new lines of business, Comcast broke out for the first time the number of customers who subscribe to its security and home automation services: 957,000. In the quarter, Comcast added 66,000 new home automation customers, up from 56,000 in the year-ago quarter.

The cable company's broadband and business services divisions posted strong sales growth in the first quarter, lifting overall revenue at the cable business -- which accounts for the bulk of Comcast's top line -- by 5.8% to $12.9 billion.

Broadband revenue increased 10% to $3.6 billion, while business-services revenue jumped almost 14% to $1.5 billion. Landline voice revenue fell 3.6% to $863 million.

One weak spot in Comcast's first-quarter earnings was local cable ad revenue, which declined 6.3%, below some analyst estimates. Even excluding the impact of political advertising in the year-earlier quarter, the decline was still 2.3%.

NBCUniversal Chief Executive Steve Burke, who is girding for the "upfront" ad sales bazaar ahead of the new broadcast season, said on a conference call with analysts that the "local advertising market is weaker than the national one." Mr. Burke sounded an optimistic note for the upfront and said NBCUniversal is going in with the "strongest hand" it has had in a while, thanks in part to Spanish broadcaster Telemundo, which has been gaining ground against rival Univision.

At NBCUniversal, revenue rose 15% to $7.9 billion, helped by strong growth at the filmed entertainment division, thanks to new movies like "Fifty Shades Darker" and "Get Out." Filmed entertainment brought in $1.98 billion in revenue, compared with $1.38 billion in the year-ago quarter.

While the cable networks and broadcast TV units grew revenue and earnings due to new carriage contracts and streaming content licensing deals, they both continued to see lackluster ad sales because of ratings softness. Cable networks' ad revenues declined 2.9% to $826 million, while broadcast TV ad revenue was essentially flat at $1.3 billion.

Regarding Comcast's dive into the wireless business, many Wall Street analysts and investors have been skeptical because its service will rely on a five-year-old reseller agreement with rival Verizon Communications Inc., raising the prospect that it isn't a stable long-term solution. Wall Street was also taken by surprise when Comcast meaningfully underspent analyst estimates in a recent government auction of airwaves -- a sign that it is remaining cautious.

While NBCUniversal sold broadcast spectrum back to the government for $481.6 million in a recent reverse-auction, Comcast bought $1.7 billion worth of wireless airwaves for cellphone service in the auction that followed.

With the auction closing, investors are gaming out whether Comcast ends up buying a wireless company instead. So far, company executives have signaled that they are happy with their current approach and don't think they need to buy a wireless carrier.

"We are taking a disciplined approach to the wireless business," Comcast Chief Executive Brian Roberts said on the call.

MoffettNathanson analyst Craig Moffett said in a research note that Comcast's approach and its strong first-quarter results could "put to rest all the mind-numbing speculation about deals, deals, deals. But we doubt it."

Write to Shalini Ramachandran at shalini.ramachandran@wsj.com

(END) Dow Jones Newswires

April 27, 2017 11:19 ET (15:19 GMT)