Eroding Cable Base Trips Up Cox

At Cox Communications (COX Quote - Cramer on COX - Stock Picks), the cash is flowing but the basics are slowing.

The Atlanta-based cable system operator said Monday morning that it beat its operating cash flow forecast for the second quarter. But the number of people subscribing to its basic cable service dropped, and Cox cut its basic growth target for the year.

The results reflect the business situation faced by all major operators of cable systems. With nearly 70% of television households subscribed to cable, and with satellite companies like EchoStar Communications (DISH Quote - Cramer on DISH - Stock Picks) eating into cable's customer base, Cox and other cable companies are working hard to supplement plain old cable revenues by offering advanced services such as high-speed Internet connections.

Holding Pattern Cox stock this year

The stock dropped $2.09, or 5%, to $40.10 Monday morning.

For the three months ended June 30, Cox reported revenue of $1 billion, matching the four-analyst consensus published by Thomson Financial/First Call and representing a 14% increase from the second quarter of 2000. Operating cash flow grew 13% from a year ago, to $382.1 million. The company had forecast a range of 11% to 12% growth. The company said that growth in its residential telephone service was "particularly vigorous."

Not so with the number of households taking cable service, which dropped more than 47,000 in the second quarter, or less than 1%, to 6.17 million. In the corresponding quarter a year ago, Cox gained 1,000 subscribers; in the first quarter of 2001, it gained about 20,700. With basic subscribers up only a half a percent from a year ago, Cox is revising its basic subscriber growth forecast for 2001 to 1% from 1.5%-2%.

The company reiterated its forecast of 12% to 13% operating cash flow growth for the year. It has a conference call with analysts scheduled for 10:30 a.m. EDT.