Hughes Electronics

(GMH)

showed better-than-expected subscriber gains in the first quarter, cut its losses and raised its estimates for the year.

Announcing results Monday for the first quarter ended March 31, the operator of the DirecTV direct-broadcast satellite service reported net subscriber additions that didn't match year-ago numbers, but were better than those anticipated by Wall Street.

Hughes' numbers -- which included the company's first quarterly operating profit in over four years -- reflect a sunnier future for DirecTV's parent than the operational outlook offered last week, when Rupert Murdoch's

News Corp.

(NWS) - Get Report

announced a deal to acquire a controlling stake in Hughes.

On a conference call with analysts Monday, Hughes CEO Jack Shaw called the quarter's results a "complete validation of our operating strategy."

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On Monday afternoon, Hughes' shares traded at $10.87, up 35 cents. Shares of rival DBS operator

EchoStar Communications

(DISH) - Get Report

rose as well, adding 50 cents to $28.13.

Subscriber Surprise

For the first quarter, Hughes reported revenue of $2.2 billion, up 10% from last year and ahead of the three-analyst consensus of $2.1 billion reported by Thomson Financial/First Call.

Earnings before interest, taxes, depreciation and amortization -- a common bottom-line yardstick for media and technology companies -- amounted to $305 million for the quarter, compared to $164.5 million a year ago. Hughes attributed the EBITDA improvement to improvements in DirecTV's U.S. operations, as well as to one-time charges of $20 million in the year-ago period.

Hughes' loss narrowed to $50.9 million in the first quarter of 2003 from $861.8 million, including preferred stock dividends, in the first quarter of 2002.

On the subscriber front, DirecTV's owned-and-operated subscriber count rose by 275,000 in the quarter to reach 9.77 million subscribers at the end of March. That's lower than the 350,000 added a year ago, but higher than the high-end net addition estimates from Wall Street, such as the 200,000 forecast by Deutsche Bank's Karim Zia. (Zia has a buy rating on Hughes; his firm has been an underwriter for Hughes within the past five years.) Hughes' numbers reflect both higher-than-expected gross subscriber additions and lower-than-expected churn, or percentage of subscribers dropping the DirecTV service.

While subscriber acquisition costs rose from $510 a year ago to $545, so did average monthly subscriber revenue, from $56.70 to $59.10.

Looking ahead, Hughes raised its operating profit estimate for the year from break-even to a range of $50 million to $100 million. Operating profit guidance for the U.S. DirecTV operation rises from a range of $275 million to $325 million to a new target of $375 million. Net subscriber addition guidance goes from a range of 750,000 to 800,000 to a range of 800,000 to 850,000 -- a range that's still below Zia's estimate of nearly 900,000 additions.