DirecTV Spruces Up Guidance - TheStreet

Updated from 2:23 p.m. EDT

Hughes Electronics

(GMH)

beat expectations for the second quarter and raised guidance for the full year.

Hughes, which is in a deal to come under the control of Rupert Murdoch's

News Corp.

(NWS) - Get Report

, says the financials, released Wednesday morning, reflect growing strength in the U.S. operations of Hughes's DirecTV home satellite service.

The numbers indicate Hughes isn't suffering at the hands of either satellite rival (and failed merger partner)

EchoStar Communications

(DISH) - Get Report

or cable TV operators such as

Comcast

(CMCSA) - Get Report

and

AOL Time Warner

(AOL)

.

Executives' comments on a conference call with analysts also reveal how crucial it is to Hughes' past and future growth to be able to offer a lineup of local broadcast channels via satellite to its customers.

DirecTV's results provided a measure of support to Hughes' shares on a gloomy day in the markets. The company's shares were trading at $13.76 Wednesday, down 4 cents.

For the second quarter ended June 30, Hughes reported revenue of $2.37 billion, up from $2.19 billion in the second quarter of 2002 and ahead of the Thomson First Call estimate of $2.30 billion.

Net income, in accord with generally accepted accounting principles, amounted to $21.6 million, rounded up to 2 cents per share, according to

TheStreet.com's

calculations. Analysts had been expecting a 3-cent loss, and the company lost 14 cents per share a year earlier.

Hughes reported an operating profit of $140 million, compared with an operating loss of $98.7 million in the corresponding quarter one year earlier.

The company said its DirecTV U.S. unit saw revenue grow 16% to $1.8 billion, added 181,000 net new subscribers in the second quarter, and raised average monthly revenue per subscriber by $2.80 from a year ago, to $60.90. Subscriber acquisition costs rose as well, however, from $545 to $595.

On the company's Wednesday call with analysts, Hughes executives said that subscriber acquisition costs for the year would be $590 per gross additional subscriber, or $20 more than the company had previously expected. The higher cost, says Hughes, stems from new subscribers' greater tendency to set up service with multiple satellite receivers and receivers with built-in personal video recorders. But the additional expense is worth it, says Hughes, because these customers tend to spend more and drop service at a lower rate than peers who don't sign up for these options.

Separately, Hughes made it clear how much of a selling point it is for DirecTV to be able to offer local broadcast stations as part of its package of satellite service. Among new sign-ups in areas where DirecTV offers local stations, 95% sign up for local service, the company said. Eighty-three percent of the company's gross subscriber additions in the quarter came from markets in which DirecTV offers local service.

The popularity of local stations highlights the importance of DirecTV's plans to double the number of markets in which it rebroadcasts local TV, brining the option to an estimated 85% of the U.S. population. It also spotlights the company's need to develop additional satellite capacity in coming years, especially given local stations' transition to broadcasting high-definition versions of their channels.

Looking ahead, Hughes raised full-year guidance for several numbers at corporate level and DirecTV U.S. (The company's DirecTV Latin America parent filed for bankruptcy protection in March.) Companywide revenue for 2003 is now projected to be in the range of $9.7 billion to $9.8 billion, up from the First Call consensus of $9.54 billion, which fell in the prior guidance range of $9.5 billion to $9.6 billion.

Operating profit, previously projected to be in the range of $50 million to $100 million, will come in between $125 million and $225 million.

The company, which says it has 11.6 million subscribers to the DirecTV service, including those marketed through the National Rural Telecommunications Cooperative, says it will add about 900,000 non-NRTC subscribers this year, up from its prior estimate of 800,000 to 850,000.

Hughes CEO Jack Shaw said the company continued to be optimistic that the News Corp. transaction could be completed by year's end.