Insight Takes a Hit From Satellite Rivals

Insight Communications (ICCI Quote) missed Wall Street expectations and nudged cash flow guidance lower for the year.

The cable operator primarily blamed one-time difficulties related to its business of offering telephone service over cable, but also alluded to aggressive marketing by direct broadcast satellite competitors in one of its largest markets.

Insight's results -- which follow positive quarterly reports from fellow operators Comcast (CMCSA Quote) and Cox (COX Quote), as well as mixed results from rebounding Charter Communications (CHTR Quote) -- calls attention to the small margin of error cable operators have as they seek to reap revenue from advanced services.

As Insight President Kim Kelly indicated on a conference call with analysts Friday, bundling advanced services such as telephony and high-speed Internet connections with basic cable is a key element of the cable industry's strategy for reaping money from its billion-dollar system upgrades.

One pitfall of that strategy, which Insight wasn't able to avoid this past quarter, is that if one element of that bundle encounters difficulties, it has a ripple effect on the financial performance of related services.

On Friday, Insight's shares fell 74 cents, or 5%, to $12.88.

Seasonality

For the second quarter ended June 30, Insight's revenue amounted to $223 million, up 11% over the second quarter of 2002 and on target with the Thomson First Call analyst consensus of $224 million.

Of greater disappointment to Wall Street was Insight's operating cash flow, or operating income less depreciation and amortization. OCF grew 6% to $94.5 million, below estimates such as $96.3 million at Credit Suisse First Boston and $100.8 million at Guzman & Co.

Though, as other operators have said in days previous, the second quarter is a seasonally week one -- especially in college towns, which Insight says amount to half of its service area -- subscriber numbers for the quarter missed already diminished expectations for basic video, digital video and high speed data.