Comcast Gets Hammered on Wall Street

Comcast stock dropped 10% Wednesday morning, after the cable TV operator cut financial guidance Tuesday night.

At 10:30 a.m.., Comcast was trading at $18.43, down $2.07 per share, or 10%. Co-chief financial officer Michael Angelakis addressed the USB Global Media & Communications Conference in New York early Tuesday, the morning after Comcast reduced its revenue projections and increased its spending outlook for 2007.

“Reflecting an increasingly challenging economic and competitive environment and consistent with trends across the sector, revenue generating units (RGUs) are now expected to increase by approximately 6 million to 57 million, versus pervious guidance of approximately 6.5 million additions,” Comcast said in a prepared statement. RGUs refer to Comcast’s video, high-speed Internet and telephone subscribers.

Free cash flow will also take a hit, Comcast said. It said Tuesday that it expects free cash flow to be approximately 80% of its performance in 2006, compared to previous estimates of 2007 consolidated free cash flow of at least 90% of 2006.

Pali Research analyst Richard Greenfield said the free cash flow guidance doesn’t bode well for the company. “Only five weeks after lowering 2007 free cash flow guidance from flat to down 10%, Comcast has lowered 2007 to down 20%. In turn, we are reducing our 2008 projection to $2.8 billion from $3.0 billion … and we are worried that estimate is too high,” Pali said in a note to clients Tuesday morning.

Comcast also reduced its revenue guidance for 2007, saying that it expects to post growth of 11% for the year, compared to previous guidance of 12%. It said cash flow will also take a hit, predicting flat cash flow growth of approximately 13%, down from previous guidance of 14% growth for 2007.

Greenfield said Comcast underestimated the impact of competition.

“While many investors may blame Comcast’s shortfall this year on the economy, we believe the vast majority of the reductions are due to competition, especially the RBOCs [regional bell operating companies],” Pali wrote in a note to clients. “Comcast simply did not expect the level of competitive marketing spend that has occurred this year. In addition, the DBS providers have aggressively marketed HD and sports programming (Big Ten and NFL Network), driving up the marketing spend needed by Comcast (not to mention Comcast is losing subs to these DBS offers/programming).”

While Comcast said it expects to generate less revenue, the cable TV operator also said it expects to spend more money. It said it expects capital expenditures to be approximately $6 billion for the year, a 5% increase from earlier guidance.

Comcast attributed the increase in capital spending to “increased advanced digital set-top box purchases, the company’s digital acceleration program, expanded network enhancements and acquisition related investments.”