Comcast Posts Excellent 2Q

Comcast Corp. (CMCSA) reported excellent second quarter 2011 financial results, which exceeded the Zacks Consensus Estimate. This performance was the combined effect of higher broadband subscriber additions and increased contribution from NBC Universal, of which Comcast acquired a controlling stake in January 2011.

Although the company continues to suffer huge video subscriber losses, it has actually declined 10.2% year over year.

EPS

GAAP net income for the second quarter of 2011 was $1,022 million or 37 cents per share compared with net income of $884 million or 31 cents per share in the prior-year quarter. Adjusted (excluding special items) EPS in the reported quarter was 42 cents, beating the Zacks Consensus Estimate by a penny.

Revenue

Second quarter 2011 total revenue came in at $14,333 million, up 50.5% year-over-year. This was also better than the Zacks Consensus Estimate of $13,773 million. Cable communications revenue increased significantly coupled with advertising revenue.

Margin

Quarterly operating costs and expenses were $9,532 million, up 64.7% year-over-year. However, quarterly operating income was $2,938 million, up 41.4% year-over-year. Operating margin in the second quarter of 2011 was 20.5% compared with 21.8% in the prior-year quarter.

Share Repurchase and Dividend

During the second quarter of 2011, Comcast repurchased 22.6 million of its common share for $525 million. In the reported quarter, Comcast paid dividends totaling $311 million.

Cash Flow

During the second quarter of 2011, Comcast generated $4,801 million of cash from operations compared with $3,737 million in the prior-year quarter. Consolidated free cash flow in the reported quarter was $1,520 million compared with $1,355 million in the year-ago quarter.

Balance Sheet

Cash and marketable securities at the end of the first quarter of 2011 was $1,997 million compared with $5,984 million at the end of fiscal 2010. Total debt at the end of the reported quarter was approximately $39,559 million compared with $29,615 million at the end of fiscal 2010. At the end of the second quarter of 2011, debt-to-capitalization ratio was 0.45 compared with 0.40 at the end of fiscal 2010.

Cable Communications Segment

Quarterly pro forma revenue was $9,341 million, up 5.6% year over year. Pro forma operating cash flow was $3,886 million, up 6.8% year over year.

Within this segment, video revenue was $4,941 million, up 1.3% year over year. High-speed Internet revenue was $2,186 million, up 10.3% year over year. Voice revenue was $878 million, up 7% year over year. Advertising revenue was $512 million, up 3.7% year over year. Business services revenue was $435 million, up 41.7% year over year. Other revenue was $389 million, up 7.1% year over year.

As of June 30, 2011, Comcast had 17.550 million (up 6.7% year over year) high-speed Internet customers; 9.063 million (up 11.5% year over year) voice customers; and 22.525 million (down 3% year over year) video customers.

NBC Universal Segment

Quarterly pro forma revenue was $5,179 million, up 17.1% year over year. Pro forma operating cash flow for this segment was $1,001 million, up 5.2% year over year. Within this segment, Cable networks revenue was $2,173 million, up 12.6% year over year. Broadcast TV revenue was $1,695 million, up 18.5% year over year. Filmed entertainment revenue was $1,254 million, up 21% year over year. Theme Parks revenue was $147 million, up 22.5% year over year.

Our Take

Comcast has become the largest integrated content development and distribution company of the U.S. after completing the acquisition of NBC Universal. We also remain quite optimistic regarding the company’s diversification, network upgrade and innovative product offering strategies. Comcast continues to post strong growth in revenue and free cash flow.

However,Comcast is facing severe competition from both telecom and satellite service providers that offer subscription TV services at a low price. Verizon Wireless (VZ) with its FiOS network and AT&T (T) with the U-Verse network are likely to make the market highly competitive. Growth of online video streaming companies, such as Netflix (NFLX) and Hulu have become major threats for the company.

We maintain our long-term Neutral recommendation on Comcast. Currently, it holds a Zacks #3 Rank (Hold) on the stock.