Satellite TV and Internet service provider EchoStar (NASDAQ:DISH) trumpeted solid earnings this morning, but is there more than meets the eye?
The company reported Q2 EPS of $0.26, up from $0.07 a year ago, on a 22% vault in revenue. It added 270,000 subscribers, an 18% jump, to hit 8.8 million. Hughes Electronics' (NYSE:GMH) DirectTV is No. 1 with 11.6 million subs as of June 30, 7.5% over last year. Despite the news, EchoStar dropped over 4% during the day.
In an unusual move, the company provides free cash flow numbers in its press release -- $150 million for the quarter. We like that and often write about the Joy of Free Cash Flow as an indispensable investment tool for measuring green production, though it's not infallible. Free cash flow equals net cash from operations minus capital expenditures, so a company could always reduce capex to show better short-term numbers but be starving the business. That's why we need to stay alert and learn what is maintenance capex and what's discretionary.
EchoStar doesn't break it out in the press release, but that's not worth a spanking. Hardly anybody does -- two exceptions are Duke Energy (NYSE:DUK) in materials posted on its website and Costco (NASDAQ:COST) in its SEC filings' management discussion.
But why does EchoStar provide quarterly free cash flow in its press release and omit the balance sheet, income statement, and cash flow statement? Because companies routinely select only that information for the press release that they want to see in the media, because their PR professionals know full well that deadlines and editorial pressure force 99% of financial writers to parrot the press release. But they usually hide the cash flow, not the balance sheet or income statement.
Of course, the full numbers will appear in the 10-Q filed with the SEC, but news is now, the 10-Q comes later, and few journalists have the skills to evaluate it -- a state of affairs that the non-profit Association for Investment Management and Research works hard to fix through its excellent online and in-person media seminars that help financial journalists read company PR hype with a more critical eye.
Yet, curiously, the company filed its 10-Q the same day as its press release and it's available now. We looked at it quickly and at first glance couldn't find any red flags that might lead the company to leave the tables out of the press release. That's the rub: There's hardly time for even analysts on deadline to read the fine print. So the company escapes another spanking, though barely.
We were all fired up to attack the company for an Enron-like omission of its balance sheet from the press release, but given the same-day 10-Q filing, let's just ask them to put the three financial statements in the next press release and give harried business writers a break. They aren't all The Motley Fool, ya know.
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