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Cablevision Stock Down 8%

Cablevision Systems shares dipped nearly 8% ($1.54 each)  in afternoon trading Tuesday after the cable operator reported mixed second quarter results and warned that the second half of the year wouldn’t get better.

Consolidated revenue grew 3.7% to $1.6 billion and adjusted operating cash flow was up 11% to $487.3 million at the cable operator in the second quarter. At its cable operations, revenue increased 3.7% to $1.45 billion and AOCF was up 6.2% $478.9 million.

But subscriber metrics missed expectations – Cablevision lost about 28,000 video customers (analysts’ consensus estimates were for a loss of 18,000 video subscribers) and shed 9,000 high-speed Internet customers (consensus was for a gain of 3,900).

Cablevision stock was down nearly 10% ($1.91 each) in earlier trading Tuesday to $17.54 per share, but inched up slightly in the afternoon, down 7.9% ($1.54 each) to $17.91 per share. The stock closed at $18.08 per share, down $1.l37  each or 7% on Aug. 5. Also helping the decline was an overall downturn in the makret -- the Dow Jones Industrial Average sank by about 140 points in afternoon trading Tuesday.

In a research note, Pivotal Research Group principal and senior media & communications analyst Jeff Wlodarczak wrote that financial performance was ahead of estimates, but at the expense of subscriber growth.

MoffettNathanson principal and senior analyst Craig Moffett added that most of the growth in the quarter was due to strict cost cutting measures. In a note to clients, Moffett wondered whether that was sustainable in the long term.

“In the end, it is hard to cut your way to greatness,” Moffett wrote.

Wlodarczak noted that most of the revenue growth on the cable side was due to pricing increases – Cablevision hiked its monthly per subscriber sports programming surcharge by about $2 in the quarter. And he noted that most of the subscriber shortfall was due to aggressive promotions from Verizon Communications’ FiOS service.

But perhaps more damaging to the stock price was that although Cablevision still expects to report mid-to-high single digit growth for the full year 2014, that will largely be on the back of the first two quarters, where revenue grew 4%, operating income was up 52% and AOCF rose 17%. Growth is expected to slow in the second half of the year.

“…certain expense increases that are anticipated for the second half of the year will temper our growth in the third and fourth quarter,” said Cablevision vice chairman and chief financial officer Gregg Siebert on a conference call with analysts. Later, Siebert explained those additional expenses will include increased marketing and legal expenses.