Comcast ( CMCSK) reported strong revenue growth Thursday, maintaining its status as the only independent cable operator to be generating free cash flow. But the Philadelphia-based cable operator, which expects to merge with AT&T's ( T) AT&T Broadband by year's end, posted a loss in its latest quarter, principally because of its investment in AT&T itself. For the second quarter ended June 30, Comcast, the nation's third-largest operator of cable systems and the owner of the QVC shopping channel, reported revenue of $2.71 billion, topping the Thomson Financial/First Call analyst consensus of $2.66 billion and rising 11.7% from pro forma figures -- adjusting for acquisitions -- for the second quarter of 2001. Adjusted net income, excluding nonoperating items, amounted to $140.3 million, or 15 cents per share, up from $99 million, or 10 cents per share one year earlier, but short of the First Call consensus of 19 cents. Investors ignored the bottom-line miss, however, nudging Comcast's shares up 21 cents to $21.11. Of greater interest to the investment community is Comcast's standout ability to generate dollars in an industry characterized by cash-burning capital expenditures and interest expense. Comcast's free cash flow -- that is, cash flow from operations minus capital expenditures, cash interest and taxes -- amounted to $398 million in the second quarter, compared to a negative figure of $193 million one year earlier.
On the conference call with analysts, Comcast treasurer John Alchin said that even had all corporate overhead been assigned to cable operations, the cable business would have generated 75% of free cash flow. The chief drivers of cable revenue growth, said Comcast, were advanced video and high speed Internet services. While reiterating prior guidance for the year, Comcast raised estimates for 2002 digital cable subscription additions from a range of 600,000 to 700,000 to a range of 700,000 to 800,000. Advertising revenue grew 13.1%, said Comcast, in part reflecting a strong local advertising market. Comcast Cable President Steve Burke was tentatively optimistic about the advertising outlook, saying that the company was taking business away from local broadcasters. "As far as the eye can see, it's good news," said Burke, who said the company would beef up its presence in the advertising community in New York following the AT&T merger. Addressing a question about why Comcast's strong basic cable growth would be strong although AT&T's is weak, Burke said that growth in basic services was correlated to the degree that a system was upgraded for advanced services. The company thinks it will be able to complete AT&T's upgrade within two years, Burke said.