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DirecTV Q4 Earnings Top Expectations on US Subscriber Revenue Growth

Reported $1.53 EPS on $8.92 billion in revenue beats industry predictions of $1.40 EPS on $8.91 billion revenue for the period

DirecTV (NASDAQ: DTV) released fourth quarter 2014 earnings on Thursday before the U.S. stock markets’ open, reporting earnings per share (EPS) of $1.53 on $8.92 billion in revenue, beating industry predictions ahead of a pending merger with AT&T.

Wall Street analysts had forecasted EPS of $1.40 on $8.91 billion in revenue, according to Yahoo Finance’s survey of 20 analysts. Zacks nine-analyst EPS estimate stood at $1.39, in line with CNN Money’s 11-analyst consensus, with an anticipated $8.9 billion in sales.

“Our fourth quarter results, although marked by challenging macroeconomic conditions in Latin America and a conscious decision to reinvest in our U.S. business, capped off another strong year of operations for DirecTV. In Latin America, despite the macroeconomic headwinds, our DirecTV and Sky brands attracted over 1.4 million net new customers — surpassing the 19 million cumulative subscriber mark by year-end. More importantly, even excluding Venezuela, DTVLA improved cash flow by over $400 million and generated positive cash flow for the year, easily surpassing our internal plans for the business,” DirecTV President and CEO Mike White said in the satellite television company’s earnings statement.

“And in the U.S., despite operating in a mature, hyper-competitive market with significant cost pressures, we were able to improve our OPBDA (operating profit before depreciation and amortization) margins for the third consecutive year and surpass all of our 2014 plans for subscriber, revenue, OPBDA and cash flow growth, while also making significant headway on improving both the customer service and entertainment experience,” White said. “The focused performance of our two primary segments resulted in a 21-percent increase in our consolidated free cash flow, topping $3.1 billion for the year, and leaving us with $4.6 billion of cash on the balance sheet at year end.”

He added, “2015 will bring additional challenges to our businesses, but given our solid continued operating momentum and the pending merger with AT&T, I am confident that we will continue to drive value for our shareholders for the foreseeable future.”

For the comparable fourth quarter of 2013, DirecTV reported EPS of $1.53 on $8.6 billion in revenue. Therefore, the market foresaw flat Q4 EPS with a year-over-year revenue gain.

DirecTV reported EPS of $1.21 last quarter, 2014’s Q3, on the lower end of analyst predictions.

In the fourth quarter, DirecTV U.S. revenues increased 5 percent to $7.14 billion compared with the fourth quarter of 2013 primarily due to strong average monthly revenue per subscriber (ARPU) growth along with a larger subscriber base, according to the company release. ARPU increased 5.0 percent to $117.30 attributable to price increases on programming packages, higher advanced receiver service fees, higher ad sales, increased commercial business revenues and higher set-top box lease fees. These improvements were partially offset by increased promotional offers to existing customers and lower revenues from pay-per-view events. DirecTV U.S. ended the year with 20.35 million subscribers, the company said.

DirecTV U.S. net subscriber additions of approximately 149,000 increased compared to the prior year period principally due to higher gross subscriber additions and a four-basis-point improvement in the average monthly churn rate, the company reported. The increase in gross additions was mainly associated with a new ad campaign, promotions, wider distribution in the consumer electronics channel and competitor programming disputes. The decrease in the monthly churn rate was primarily due to lower voluntary churn from improved retention practices, as well as more successful winback offers, according to the DirecTV release.

On Wednesday, a day before it released Q4’s financials, DirecTV stock (DTV) closed at $87.34 per share, down $0.13 or 0.15 percent under the previous day’s close. Following the earnings announcement, DTV shares closed down $0.13 (0.14 percent) on Thursday at $87.21.

DirecTV officers later said, looking at the U.S. market on a standalone basis (without the AT&T merger), they expect 2015 to look like the previous year, but they will increase package prices more than the inflation rate in order to help offset higher programming costs, including those negotiated with Disney and the National Football League.

“Unfortunately, we have to increase prices more than we would like,” said Patrick T. Doyle, executive vice president and chief financial officer, in a conference call and webcast for investors and reporters on Thursday. “We’re obviously reluctant to put through such a high price increase.”

Management also noted that they’ve expanded service offerings through Costco and Walmart as part of their investment in pursuing high-quality customers — those who order higher-margin premium packages — driven in part by the company’s ad campaign featuring actor Rob Lowe.

Still, White expressed a sensitivity to subscribers with economic constraints who desire cheaper, basic packages. He further explained the increases by indicating that the satellite television company is providing improved customer service and increased on-demand offerings through deals with Fox and Disney, while “fighting against exorbitant content price increases.”

White indicated that he expects news on the AT&T merger in the next month, following the FCC’s net neutrality ruling.

DirecTV provides digital television services to more than 39 million customers in the U.S. and Latin America. In the United States, the company offers more than 195 HD channels to over 20 million customers. DirecTV Latin America delivers digital television to over 19 million customers through subsidiaries and affiliated companies in Brazil, Mexico, Argentina, Venezuela, Colombia and other Latin American countries.

DTV stock price activity 2/19 (NASDAQ)