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DirecTV Swings to Profit

Gross subscriber additions are down from a year ago.
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swung to a fourth-quarter profit as a growing subscriber base spent more on its satellite television services.

The company earned $121 million, or 9 cents a share, in the quarter, compared with a loss of $289 million, or 21 cents a share, a year ago. The latest quarter had a $12 million gain related to subscriber migration, while the year-ago period had $236 million of charges for an asset sale and the shutdown of Mexican operations.

Analysts were forecasting earnings of 3 cents a share in the latest quarter, according to Thomson First Call.

On the top line, fourth-quarter revenue rose 15% from a year ago to $3.41 billion, short of the $3.59 billion Thomson First Call consensus. DirecTV said average revenue per user was $75.53 in the quarter, rising 5% from a year ago "due to programming package price increases and higher mirroring fees from an increase in the average number of set-top receivers per customer."

Gross subscriber additions were 965,000 in the quarter, 13% below the number of additions in the year ago-quarter. It blamed a more stringent credit policy implemented in the second quarter. Average monthly churn in the quarter increased to 1.70% "principally due to higher involuntary churn from customers with lower credit scores attained in 2004 and early 2005, a more competitive marketplace and 10,000 disconnected subscribers associated with Hurricane Katrina."

The company added 200,000 net subscribers in the quarter after factoring in the churn.

"Fourth-quarter results for DirecTV U.S. reflect our strategy to improve the quality of our subscriber base and reduce customer churn, while at the same time drive significant revenue and earnings growth," the company said. "Operating profit before depreciation and amortization of $442 million was up nearly four times over last year's fourth quarter, primarily due to the revenue growth and higher operating margin related to improved scale and operating efficiencies. Importantly, these improvements drove free cash flow to $155 million in the quarter and $536 million for the full year -- a nearly $1 billion increase in DirecTV U.S. free cash flow compared to 2004."