Cox Keeps Squeezing Costs

The big cable company posts stronger-than-expected numbers.
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Cox Communications (COX) beat bottom-line estimates Wednesday and raised guidance for the full year.

The results from Cox, the nation's fourth-largest cable operator, reflect both cost controls and a not-yet-tangible threat from regional Bell operating companies.

"Our record first quarter wasn't an anomaly," CEO Jim Robbins told analysts on a conference call Wednesday.

Shares in Cox -- the first of the stand-alone operators to report its results this earnings season -- dropped 52 cents to trade at $32.15 Wednesday morning. Over the past 52 weeks, the company's stock has ranged from a low of $18.95 last summer to a recent high of $34.90.

For the second quarter ended June 30, Atlanta-based Cox reported revenue of $1.42 billion, up 14% from the second quarter of 2002 and matching the consensus of analysts surveyed by Thomson First Call. The company attributed the growth to the popularity of advanced services, higher basic cable rates and a $5-a-month price increase for high-speed Internet service.

Operating cash flow -- that is, operating income before depreciation, amortization and gains or losses on the sale of cable systems -- grew 20% from a year ago, to $532.1 million. Analysts had been expecting OCF in the range of $500 million to $510 million, according to's

informal survey.

Net income, which included a $124 million gain on investments, amounted to $117.7 million, or 19 cents per share, compared with the First Call break-even consensus. The company lost $516.2 million in the second quarter of 2002, including a $793 million loss on investments.

Helping the bottom line were lower sales and marketing costs. Selling, general and administrative expenses grew 6%, and marketing expense grew 1% over last year.

The company says it's targeting its marketing better than it has in the past, and focusing on sales of advanced services made as people sign up for basic cable.

Cox executives continue to attribute much of the company's success to its efforts at selling bundles of advanced services, including digital video (which includes video-on-demand), high-speed Internet connections and telephony service over cable.

Net additional customers for high speed data amounted to 112,452, in line with or ahead of analysts estimates. The company says it continues to see no impact on its business from high-profile efforts by RBOCs such as


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to increase their own high-speed Internet business.

Looking ahead, Cox increased OCF guidance from a range of 15% to 16% over last year to a range of 17% to 18%. (Excluding the impact of a 2002 one-time charge related to Cox's former Internet service provider Excite@Home, the guidance goes from 14%-15% to 16%-17%.) Cox also cut expected 2003 capital expenditures from $1.6 billion to $1.5 billion, and indicated capex would stay down in 2004 despite the planned expansion of the company's telephony business.