Comcast Corporation (CMCSA) Earnings & Analysis

Latest quarter

Comcast reported third-quarter revenue of $29.3 billion, below the $29.4 billion consensus, while adjusted earnings per share of $1.07 exceeded the $0.98 consensus. Revenue declined from $31.2 billion a year earlier, although CFO Jason Armstrong said it was flat on a pro forma basis.

Comcast’s filing attributed the reported revenue decline partly to the Versant separation, the sale of its Sky operations in Germany and lower Connectivity & Platforms revenue. Those decreases were partly offset by growth in Content & Experiences.

In connectivity, the filing said domestic broadband revenue fell as average rates and customer numbers declined. Domestic wireless service revenue increased as the company added lines and converted promotional free lines to paid service. Comcast also reported higher media revenue, including the effect of the FIFA World Cup, while theme park revenue fell primarily because of lower park admissions revenue.

Comcast reported diluted earnings per share of $0.97, up from $0.90 a year earlier. Operating margin rose to 18.2% from 17.7%, while free cash flow declined to $4.2 billion from $4.9 billion.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

Armstrong said Comcast lost 144,000 broadband subscribers and added 368,000 net wireless lines in the quarter. He attributed higher churn and year-over-year pressure on subscriber trends to competition, including fiber promotions in some markets, and an unusually high volume of legacy broadband customers facing pricing transitions. Comcast is refining offers and retention strategies in response, he said.

Asked about competition, Armstrong said the market had been more competitive in the second half of the year than in the first. Cable COO Steve Croney said Comcast would compete by differentiating products, deepening customer relationships and improving the customer experience.

On wireless, Armstrong said Comcast was converting 70% of its free lines into paying relationships and planned to pursue more multi-line customers and premium plans. Croney said the free-line offer had increased awareness and adoption, while average lines per account among those customers had continued to rise over time.

Armstrong said Connectivity & Platforms revenue fell 2.6% and EBITDA fell 4.4%, reflecting investments in pricing, packaging and wireless. He said year-over-year declines in convergence revenue per customer, broadband revenue per customer and connectivity EBITDA narrowed sequentially. Comcast expects further slight improvement in those trends in the fourth quarter as it continues moving customers to new packages and offering free lines, he said.

In media, Armstrong said Peacock generated $261 million of EBITDA and increased revenue 34%, with paid subscribers stable sequentially despite a price increase. Asked about Peacock’s future profitability, President Mike Cavanagh said quarterly results could vary with the timing of rights costs, but he expected continued profitability on an annual basis. He also described a planned Peacock and YouTube Premium bundle as a way to reach an additional audience.

Armstrong said Comcast was redesigning its organization and accelerating technology and AI adoption. He said it had reduced customer service contact rates by roughly 20% and expected a fourth-quarter charge related mostly to transformation. On theme parks, he said softer demand and comparisons in Orlando would weigh on fourth-quarter results; Cavanagh expected Orlando softness to continue at least through the first half of next year.

Guidance

Armstrong now expects a fourth-quarter charge of over $1 billion, mostly related to transformation efforts. He also expects favorable timing effects that helped third-quarter free cash flow to reverse in the fourth quarter.

For theme parks, Armstrong expects softer Orlando demand and comparisons to weigh on fourth-quarter results. Cavanagh expects Orlando softness to continue at least through the first half of next year.