Charter Sees Quarterly Net Climb on Broad Sales Growth — WSJ

By Tess Stynes and Shalini Ramachandran 
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Charter Communications Inc. said its second-quarter earnings climbed on revenue growth across its segments in the latest period, during which the company completed its roughly $60 billion acquisition of Time Warner Cable Inc.

The results helped push up Charter shares 9% in early afternoon trading.

“If you take the Charter growth strategy and apply it to a much bigger set of assets…you create a lot of value in the footprint,” Charter Chief Executive Tom Rutledge told analysts on an earnings call Tuesday.

Charter’s cash-and-stock deal for Time Warner Cable, initially valued at about $55 billion when it was announced last year, had faced regulatory hurdles and criticism from consumer groups. Subsequent stock gains have raised the total value to about $60 billion. The Federal Communications Commission’s approval of the deal came with restrictions aiming to help reduce threats to online video competition that could be exacerbated by consolidation of the cable industry.

The combined cable giant is now the second-biggest broadband provider in the U.S., after Comcast Corp., and the third-largest pay-TV company, trailing AT&T Inc. and Comcast. As part of the transaction, Charter also acquired smaller operator Bright House Networks.

The latest quarter includes Time Warner Cable and Bright House results beginning May 18. In addition to its actual second-quarter results, which are skewed in comparison to the prior year because of the transactions, the company also provided results on a pro forma basis, which treat the acquisitions as if they had closed at the beginning of the year-ago period.

Charter said the total company lost 152,000 residential video customers, compared with a pro forma loss of 170,000 in the year-ago period. The results were driven by better video performance in the old Charter and Bright House footprints, offset by worse losses in the legacy Time Warner Cable service area.

Charter executives said they hope to upgrade TV transmission across their newly acquired cable footprints to digital by the end of 2018 to allow for faster broadband speeds and more advanced video products. The cable giant ended the quarter with about 24 million residential customers, nearly 17 million of which subscribe to cable television.

On Tuesday’s earnings call, Mr. Rutledge addressed recent lawsuits from Fox News and Univision Communications Inc. Both allege that Charter breached its programming contracts by claiming that Time Warner Cable bought Charter, as opposed to the other way around, in a bid to score cheaper carriage rates.

“It is still a contentious contractual environment but generally we have a good relationship with our programmers and I think the litigation is part of the negotiation process,” Mr. Rutledge said.

The company said its results were helped in the latest period primarily by growth in internet, commercial and video revenues.

Internet revenue — the second-largest component of the company’s residential segment, which makes up the bulk of its top line — climbed 12%, on a pro forma basis. In its much smaller commercial segment, strong performance in the enterprise and small and medium business components helped push revenue up 13.4%.

The company also said advertising sales rose 3.9%, on a pro forma basis, driven by an increase in national and political advertising revenue. Meanwhile, total operating costs rose 5.3% on a pro forma basis, driven by increases in programming and other expenses.

Over all, on a reported basis, Charter reported a profit of $3.07 billion, or $15.17 cents a share, compared with a year-earlier loss of $122 million, or $1.21 a share. On a pro forma basis, per-share earnings rose to 99 cents from 39 cents.

Revenue rose 6.6% to $9.99 billion, on a pro forma basis.

Joshua Jamerson contributed

Write to Tess Stynes at tess.stynes[a] and Shalini Ramachandran at shalini.ramachandran[a]

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