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Comcast (CMCSA) Down 4.9% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Comcast (CMCSA). Shares have lost about 4.9% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Comcast due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Comcast Q2 Earnings Beat Estimates, Revenues Miss

Comcast reported second-quarter 2019 adjusted earnings of 78 cents per share that beat the Zacks Consensus Estimate by 3 cents. The figure increased 13% year over year.

Consolidated revenues increased 23.6% year over year to $26.89 billion but lagged the Zacks Consensus Estimate of $27.19 billion.

However, revenues on a Pro-Forma basis (considering the Sky transaction on Jan 1, 2017) increased 0.8% year over year.

Cable Communication Revenue Details

Revenues climbed 3.9% from the year-ago quarter to $14.45 billion. Total Customer Relationships increased 152K to 30.9 million.

High-speed Internet revenues grew 9.4% year over year to $4.66 billion, primarily driven by increased residential high-speed Internet customers and rate adjustments. Total high-speed Internet customer net additions were 209K.

Moreover, residential high-speed Internet ARPU grew 4% year over year in the reported quarter.

Business Services revenues increased 9.8% to $1.93 billion, driven by customer base expansion.

Wireless revenues grew 21% to $244 million, supported by an increase in the number of customer lines. Comcast added 181K wireless lines in the reported quarter.

Other revenues increased 6% from the year-ago quarter to $427 million, primarily due to higher sales from security and automation services. Total security and automation customer net additions were 23K at the end of the second quarter.

Advertising revenues declined 8.7% to $607 million, primarily due to lower political advertising revenues.

Voice revenues were $982 million, down 1.1% year over year, owing to a declining number of residential voice customers.

Video revenues dropped 0.6% to $5.59 billion, reflecting a decline in the number of residential video customer count.

Total video customer net losses were 224K, while total voice customer net losses were 65K.

Comcast stated that it’s not going to chase unprofitable video subscribers that will ultimately boost profitability per subscriber.

At the end of the second quarter, 66.6% of Comcast’s residential customers received at least two Xfinity products.

NBCUniversal Revenues Down Y/Y

Revenues declined 0.8% year over year to almost $8.21 billion.

Cable Networks’ revenues increased 2.5% from the year-ago quarter to $2.95 billion, primarily due to higher distribution (up 3.4%) and content licensing & other revenues (up 5.1%). Advertising revenues were flat year over year.

Broadcast Television revenues inched up 0.5% from the year-ago quarter to $2.40 billion, driven by increased distribution & other revenues (up 14.7%), partially offset by lower advertising (down 4.2%) and content licensing revenues (down 1.7%).

Filmed Entertainment revenues decreased 14.8% from the year-ago quarter to $1.46 billion. Theatrical revenues plunged 53.1% due to a lesser number of major releases than the year-ago quarter. Content licensing revenues increased 9.8% year over year.

Theme Parks revenues were $1.46 billion, up 7.5% year over year, driven by higher attendance owing to favorable timing of the spring holidays and increased guest spending.

Sky Revenue Details

Pro-Forma Revenues declined 3.3% year over year to $4.83 billion. At constant currency (cc), revenues increased 2.4%.

Direct-to-consumer revenues declined 4% (up 1.7% at cc) from the year-ago quarter to $3.89 billion.

Content revenues increased 21% (27.7% at cc) to $376 million, benefiting from exclusive sports rights recently acquired by the company in Italy and Germany, and higher monetization of the its slate of original programming.

Advertising revenues deteriorated 10.7% (down 5.6% at cc) from the year-ago quarter to $563 million.

Pro-Forma Total Customer Relationships increased 304K to 24 million in the reported quarter.

Operating Details

Consolidated programming & production costs increased 31% from the year-ago quarter to $8.26 billion. As percentage of revenues, programming & production costs expanded 180 basis points (bps) on a year-over-year basis.

Consolidated adjusted EBITDA increased 17.5% from the year-ago quarter to $8.72 billion. Pro-Forma (including Sky operations) adjusted EBITDA increased 7.6%.

Segment-wise, Cable Communications’ adjusted EBITDA increased 7.4% from the year-ago quarter to $5.85 billion. EBITDA margin expanded 130 bps to 40.5%.

Cable Communications operating expenses increased 1.6% on a year-over-year basis on higher programming and non-programming costs.

Cable Communications results include a loss of $88 million from the wireless business compared with a loss of $185 million in the year-ago quarter.

NBCUniversal adjusted EBITDA increased 8.1% from the year-ago quarter to $2.32 billion, reflecting growth at Broadcast Television, Filmed Entertainment, Cable Networks and Theme Parks adjusted EBITDA.

Sky’s adjusted EBITDA on a pro-forma basis increased 13.4% (up 19.9% at cc) to $772 million. Notably, Sky’s operating costs and expenses fell 5.9% (down 0.4% at cc) to $4.06 billion.

Consolidated operating income increased 6.8% year over year to $5.36 billion. However, operating margin contracted 310 bps from the year-ago quarter to 19.9%.

Cash Flow & Liquidity

In second-quarter 2019, Comcast generated $7 billion of cash from operations compared with $7.23 billion in the previous quarter.

Capital expenditures increased 0.6% to $2.3 billion. NBCUniversal’s capital expenditures rose 2.7% to $473 million. Sky reported capital expenditures of $177 million.

Free cash flow was $4.20 billion in the reported quarter.

During the quarter, Comcast paid out dividends worth $954 million.

Outlook

For Xfinity Mobile (wireless business), Comcast expects customer acquisition expenses to increase in the seasonally strong third and fourth quarters.

Moreover, the company now expects Cable EBITDA margin for 2019 to expand slightly above 100 bps on a year-over-year basis, better than earlier guidance of up to 100 bps improvement. Cable EBITDA margin was 38.7% in 2018.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Comcast has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, Comcast has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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