Soft Guidance Sends Hughes Lower

Shares in Hughes Electronics (GMH Quote - Cramer on GMH - Stock Picks) fell Monday after the satellite TV operator lowered guidance for the year.

Although revenue and cash flow from the company's DirecTV direct broadcast satellite service in the U.S. will be higher than previously forecast, says Hughes, those gains will be more than offset by declines in other business lines, particularly its satellite service based in Latin America.

Shares of DirecTV, which dropped 7.5% after the company's midmorning earnings release for the third quarter ended Sept. 30, were trading at $8.40 Monday, down 36 cents, or 4.1%. Shares in EchoStar Communications (DISH Quote - Cramer on DISH - Stock Picks), whose planned merger with Hughes was rendered a long shot by an adverse Federal Communications Commission decision last week, fell 1.6% to trade at $17.

In alignment with Hughes's preannouncement of third-quarter financials late last month, Hughes said its revenue grew 5.3% from last year to $2.21 billion for the quarter, near the low end of the company's original guidance in the range of $2.2 billion to $2.25 billion. Earnings before interest, taxes, depreciation and amortization -- a common bottom-line measure for media companies -- grew to $243.5 million, up from the third-quarter 2001 figure, excluding one-time charges, of $141.8 million.

As Hughes said last month, revenue and EBITDA for the U.S. DirecTV business came in higher than originally expected, while net subscriber additions amounted to 206,000, coming in below the originally expected range of 250,000 to 300,000. The company counts 10.9 million U.S. subscribers.

The subscriber shortfall, says Hughes, came from increased churn -- or customer signoffs -- resulting from the company's aggressive fight against signal piracy by replacing customers' older conditional access cards, as well as sales that were slightly lower than expected.

Latin America's financial crisis, particularly in Argentina, ate into Hughes' subscriber counts and revenue in Latin America, and increased its losses. Also weighing on the company were lower sales at the majority-owned PanAmSat (Nasdaq Quote - Cramer on Nasdaq - Stock Picks) and at the company's Hughes Network Systems telecom-equipment provider.

Most of those positive and negative trends will continue into the fourth quarter, says Hughes. The company is cutting its full-year revenue forecast from a range of $9 billion to $9.2 billion to a range of $8.9 billion to $9 billion. EBITDA, says Hughes, will approximate $750 million, down from an original range of $750 million to $850 million. The improvement from U.S. DirecTV's performance, says Hughes, "is more than offset by the negative effects from the devaluation impact on DirecTV Latin America and the slumping telecommunications market on HNS."

Hughes is holding a conference call at 2 p.m. EDT Monday, in which analysts are likely to ask about the outcome of the crippled deal with EchoStar. In a statement, Hughes says it will continue to work "aggressively" to achieve approval of the merger.