Charter Communications ( CHTR) once again told Wall Street that it is closer to generating cash than one might guess from the cable operator's battered stock price. And on Tuesday, at least temporarily, the market listened. In its second-quarter conference call with analysts, the highly leveraged cable operator cut back capital expenditures for the year as part of its campaign to achieve free cash flow -- that is, cash flow from operations after capex and interest expense have been subtracted. In addition, the company reported greater-than-expected revenue for the quarter, as strong expansion in advanced services overshadowed greater-than-expected declines in the number of Charter customers subscribing to basic video service, an industrywide problem this earnings season. Moreover, CEO Carl Vogel and other executives, addressing investor concerns about accounting practices exacerbated by the ills at Adelphia Communications ( ADELQ), repeated their assertions that the company's accounting practices accurately reflect its operations. There's "no rational basis," Vogel said on a conference call with analysts, for concluding that Charter's financial statements are misleading. On Tuesday afternoon, Charter's shares were up 29 cents, or 11%, to trade at $2.93. Like other cable operators, Charter's shares have been walloped by the market over the past year; the stock is down 87% from its 52-week high, and the company's debt is trading at a deep discount as well. Shares in all the major cable operators not under bankruptcy protection were up Tuesday as well in the broad market rebound, led by double-digit gains at Comcast ( CMCSK) and Cox ( COX). With Charter at these prices, it has occured to the dimmest of investors that Paul Allen, the Microsoft ( MSFT) billionaire who is Charter's biggest shareholder, might be a big buyer of company shares or debt.
Asked by an analyst on the conference call, Vogel said that while he'd certainly suggested the idea to Allen, he had no knowledge of Allen's plans along these lines. "Paul doesn't share what he's doing with me personally," said Vogel, who added that members of the company's management team were buyers of Charter's equity and debt securities. On the call, the company reiterated financial guidance for the year, with one modification: Mindful of Wall Street's desire to see free cash flow, Charter is cutting capex by $125 million for the year to $2.35 billion, via a variety of measures. The company declined to give guidance for next year's capex, but said that expenditures for rebuilding the company's network would drop from $1 billion in 2002 to $200 million in 2003, implying that, all other things being equal, capex would be $1.5 billion in 2003 "at worst." Charter says it has enough current borrowing capacity to get it to free cash flow positive. For the second quarter ended June 30, Charter lost $202 million, or 69 cents a share, against a year-ago loss of $274 million, or $1.07 a share. Charter reported $1.16 billion in revenue, up 14.3% from pro forma figures for the second quarter of 2001, and operating cash flow of $501 million, up 13.8%. The company said the biggest driver of growth was its high speed Internet business, which grew faster than expected. Growth in Internet and advanced video made up for a year-over-year decline of 2.7% among basic cable customers.