EchoStar Communications Corp., the second-largest U.S. satellite-television provider, said third- quarter profit fell after the company spent more on marketing.
Sales jumped 16 percent to $2.47 billion, exceeding analysts’ estimates. Analysts predicted $2.44 billion, according to the average in a Thomson Financial survey. Net income fell 33 percent to $140 million, or 31 cents a share, the Englewood, Colorado-based company said today in a statement.
Chief Executive Officer Charles Ergen revived subscriber growth that had slowed in the second quarter by boosting spending on advertising and promotions. The effort helped Ergen fend off cable operators such as Comcast Corp. and telephone companies that have begun to offer packaged services of pay- television, telephone and Internet access.
“It’s a solid quarter,” said Thomas Eagan, an analyst at Oppenheimer & Co. in New York who rates the shares “neutral.” “The cable companies are doing well with their packages but the bulk of video customers still goes to satellite.” Shares of EchoStar rose 67 cents to $35.98 at 4 p.m. New York time in Nasdaq Stock Market composite trading. They have gained 32 percent this year.
Net income declined from $209 million, or 46 cents a share, in the year-ago period, which included a $73 million tax benefit, the company said.
Analysts surveyed by Thomson Financial estimated profit of 38 cents, according to the average of 17 estimates.
Subscriber Additions EchoStar added 295,000 net new subscribers in the third quarter, surpassing the 213,000 average of four analyst estimates compiled by Bloomberg.
The total exceeded some estimates by as much as 100,000, said Matthew J. Harrigan, an analyst with Greenwood, Colorado- based Janco Partners. “There were some very good numbers.” The additions represent a 51 percent increase from the 195,000 customers added in the second quarter, when growth slowed. Ergen, 53, spent $438.8 million on advertising and promotion costs, up 9 percent from $402.6 million a year earlier, and 17 percent from the second quarter.
Higher programming costs also hurt profit margins, said UBS Securities analyst Aryeh Bourkoff in a research note.
The company probably benefited from the July acquisition of cable assets from Adelphia Communications Corp. by Philadelphia- based Comcast and Time Warner Cable, the two largest U.S. cable operators, Eagan said. Some Adelphia customers may have switched to satellite, Eagan said.
Average revenue per subscriber increased to $62.86 from $57.87 a year earlier. The rate of churn, or customers lost each month, fell to 1.76 percent from 1.86 percent a year earlier.
Local Service Sales this quarter may be hampered by a court decision that blocks the company from importing broadcast network signals from one market to another. The ruling, which goes into effect on Dec. 1, could affect 900,000 subscribers, Ergen said on a conference call.
Most affected subscribers have access to local television stations, Ergen said. The company may urge subscribers to put TV antennas on their roof or buy the lowest tier of cable service to get local TV stations, Ergen said.
“If they switch to our competitors, we are just going to have to find new customers to replace them,” Ergen said.
DirecTV During a conference call with analysts Ergen downplayed speculation of a potential merger with larger rival DirecTV.
“It’s not something we are spending time on, let’s put it that way,” Ergen said.
DirecTV, the U.S. largest satellite company, is also bolstering its marketing efforts to gain customers as competition from cable and phone companies increases.
The El Segundo, California-based company, which is controlled by News Corp., is combining all its advertising sales teams to bring the entire operation in-house, the El Segundo, California-based company said in a separate statement today.
The change will enable DirecTV to implement an “aggressive new advertising sales strategy with more control,” Eric Shanks, executive vice president of DirecTV’s entertainment unit, said in the statement.
