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Charter Communications, Inc. Jumped on Earnings: What You Need to Know

By Anders Bylund - Jul 28, 2017 at 8:09PM

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The second-largest cable company in America reported solid second-quarter results and outlined a sensible growth strategy. Investors loved it.

Earlier this week, Charter Communications (CHTR 2.56%) reported second-quarter earnings to a standing market ovation. The cable broadcaster's share prices rose as much as 6.4% the next day and closed 5.2% higher.

Here's how Charter earned those quick gains for its shareholders.

By the numbers

Metric

Q2 2017 Result

Q2 2016 Result

Growth (YOY)

Revenue

$10.4 billion

$10.0 billion

3.9%

Residential customers

25.3 million

24.3 million

4.1%

Net income attributable to shareholders

$139 million

$248 million

(44%)

Adjusted EBITDA profits

$3.8 billion

$3.5 billion

8.6%

GAAP earnings per share (Diluted)

$0.52

$0.91

(43%)

Data source: Charter Communications, using non-GAAP figures for 2016 to account for the acquisition of Time Warner Cable and Brighthouse markets. YOY = year over year.

Adjusted EBITDA is a non-GAAP financial metric that Charter and other cable operators like to present as a close approximation of operating results without the financial trappings of debt service and pension plans, among other things. It is calculated from net income, backing out items like interest expenses, income taxes, stock-based compensation, gain or loss on financial instruments (warrants, options, stock holdings, and such), depreciation, amortization, and special or one-time line items.

Charter's residential segment added 231,000 net new internet subscribers and 14,000 voice customers in the second quarter, while the number of video customers fell by 90,000.

In the small and medium business division, all three service types posted modest net additions. The video business grew by 14,000 clients, 36,000 names were added to the internet list, and another 38,000 customers signed up for Charter's business-class voice services. Four new enterprise clients also came knocking, bringing the total count in that category to 103.

In other words, Charter is attracting a solid volume on new business-class clients while consumers are moving out of video services and into broadband internet contracts. This is a common story all around the cable and telecom sectors nowadays, and not at all unique to Charter.

Coaxial cable, strippped as if preparing for a new connection.

Image source: Getty Images.

What's next?

The company does not engage in presenting financial guidance, but management certainly spent plenty of time discussing the near future on the earnings call.

Recent changes to Charter's service pricing under the new Spectrum brand should drive average revenues per customer higher over the next few quarters. Charter CEO Tom Rutledge presented this as a win-win for his company and its customers.

"More of our customers are getting better products with better and consistent pricing, which will drive higher customer satisfaction, lower churn and greater value into our business," Rutledge said.

The company is preparing to launch a wireless service next year using rebranded connections from Verizon Communications (VZ 0.83%) and Comcast (CMCSA 1.52%), and Charter is also planning to offer broadband and video services over a fixed 5G wireless network at some undefined point in the future. The times, they are a-changin', and Charter is trying its best to keep up.

Charter shares have now gained 54% over the last 52 weeks. The Time Warner Cable and Brighthouse transactions scaled up the company's revenues and cash flows in a hurry, and the stock also trades at historically high price to cash flow ratios. Investors like what they see in the nation's second-largest cable provider, and I'd say it's for good reason. Charter is doing alright.

Anders Bylund has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Verizon Communications. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Charter Communications, Inc. Stock Quote
Charter Communications, Inc.
CHTR
$478.12 (2.56%) $11.93
Verizon Communications Inc. Stock Quote
Verizon Communications Inc.
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$45.15 (0.83%) $0.37
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Comcast Corporation
CMCSA
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