DirecTV Earnings: Currency Exchange and Margins Weigh on Net Income

DirecTV released first-quarter results before today's market open. The satellite TV and Internet provider delivered revenue of $8.14 billion and earnings per share of $1.44 on net income of $730 million. Both revenue and EPS came in below the average analyst estimate derived from a Zacks poll, with the average estimate calling for sales of $8.16 billion and earnings per share of $1.52.

The resultsFirst-quarter revenue of $8.14 billion represented a 4% increase annually, with the growth being driven by increases in average revenue per user. The company has been steadily raising subscription prices, with estimates that average cost per user will rise 10% this year. The diluted earnings per share of $1.44 missed the average analyst estimate by roughly 5%, and declined 11.7% from EPS of $1.63 in the year prior. Adjusted operating profit before depreciation and amortization came in at $2.12 billion, representing a roughly 4.7% decline year over year on a 26% margin.

Adjusted operating profit for the quarter declined roughly 8% year over year to $1.39 billion on a 17% margin. Profit margin declines were attributed to higher customer acquisition costs in the U.S. segment, lower margins from Sky Brasil, and increased general and administrative expenses.

DirecTV recorded another quarter with net subscriber growth, adding 279,000 new customers. Sixty thousand of those customers came in the company's U.S. segment, which sported the lowest first-quarter monthly churn rate in six years at 1.37%. Churn describes the number of customers lapsed in service, so customer addition and low atrophy would seem to be good news for the TV service provider in light of concerns about competition from non-traditional TV packages. The company also recorded its highest first quarter ARPU growth in five years. Reported OPBDA was $2.12 billion, up 9% from last year's first quarter term, while reported operating profit decreased roughly 8% to $1.39 billion.

DIRECTV's cash flow before interest and taxes came in at $1.27 billion, a less than 1% decline from the first quarter in fiscal 2014. Free cash flow for the quarter was $927 million, up 4.6% from $886 million in first quarter 2014.

U.S. segmentDirecTV's U.S. segment recorded quarterly revenue of $6.46 billion. The 6% sales growth year over year stemmed from increasing ARPU, which grew 5.5% on increased costs of programming packages and regional sports networks, as well as increased hardware and receiver service fees. Low monthly churn helped the segment grow first-quarter subscriber additions from 12,000 in the year prior to 60,000 in 2015. The company had 20.41 million subscribers in its U.S. segment as of March 31. OPBDA and operating profit both increased 1%, however OPBDA margin fell from 27.4% to 26.1% and operating profit margin fell 20.4% to 19.3%

Latin America segmentIn the Latin America segment, first-quarter revenues came in at $1.635 billion, representing a roughly 5% decline year over year. Adjusted OPBDA margin fell from 31.4% to 27.2%, while adjusted operating profit margin fell from 14.8% to 9.5%. Sky Brasil revenues increased roughly 2% when currency changes are accounted for, with subscriber level growing roughly 4% and local currency ARPU declining 2%, however quarterly revenue of $795 million was down roughly 15% from the year prior. The Pan Americana and Other component of the Latin America segment delivered $840 million in revenue, up from $782 million in the prior year.

What's next for DirecTV?The proposed merger with AT&T stands as the biggest order of business on DirecTV's plate. The company had previously anticipated that the merger would be confirmed in the current quarter, and reiterated that it still believed the deal was on track with its earnings report. The recent calling off of the potential Time Warner and Comcast merger may cast DirecTV's merger ambitions in a new light. DirecTV's television offerings are generally regarded as strong, with key packages such as the NFL Sunday Ticket working to drive customer interest and give the service an identity, but DirecTV remains far behind in terms of Internet. MVPD services from Netflix, Hulu,, DISH Network and others continue to challenge the traditional TV subscription model, and DirecTV's lack of strength as an ISP is a major concern for the company.

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