Cablevision's profit miss drags down entire sector

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(Global Markets) - Cablevision Systems Corp's quarterly earnings widely missed Wall Street estimates, as it dealt with a weak economy, high programing costs and competition from phone companies offering TV services.

The disappointing earnings report sent Cablevision shares plunging as much as 16 percent and dragged down other stocks in the sector, including Comcast, Time Warner Cable, Dish Network and DirecTV.

Shares in those companies fell between 3.5 percent and 4 percent on Friday.

Cablevision missed Wall Street's consensus by 14 cents on Friday and its earnings report raised questions among analysts about the company's growth prospects, as its faces mounting costs and a shrinking user base.

"The earnings miss is a big and ugly one," said Bernstein Research analyst Craig Moffett in a research note. "The key issue is growth. Without growth, it's hard to grow margins."

Cable companies have been losing video customers to phone companies such as Verizon Communications, which offers FiOs TV, as well as to Internet companies such as Netflix Inc and Hulu.

Cablevision was the second cable company in two days to report disappointing earnings and then have its shares fall by double digits. On Thursday, Time Warner Cable lost more video customers than expected and its shares fell 10 percent.

Cablevision, which mainly serves the New York area but now has operations in Montana and Wyoming, said it lost 19,000 video subscribers in the third quarter.

Verizon competes with Cablevision in the greater New York area and in the same period it added 131,000 video customers. Earlier this month, Verizon said it expects to add 200,000 FiOS TV customers in the fourth-quarter.

Brean Murray analyst Todd Mitchell said Friday's results show that Cablevision is "having trouble in their New York clusters."

Cablevision executives also blamed the weak economy for stunting housing growth and hurting its business. If people are not moving into new homes, they will not sign up for new TV service. The company's chief operating officer called it a "cyclically challenging time."

"You have a situation currently where you have pretty slow housing growth, virtually no housing growth, and actual reduction in household formation," said Cablevision's COO Tom Rutledge on the conference call.

Cablevision said it took a hit of $16 million because of Hurricane Irene, a storm that affected the New York area in August.

One bright spot for Cablevision was its Internet additions. Analysts were expecting it to add 5,000 new Internet customers and it added 17,000 in the quarter.

Cablevision posted a profit of $39.3 million, down from $112.1 million a year earlier.

Adjusted for various charges, the company reported earnings per share of 17 cents, which missed analysts' expectations of 31 cents per share.

Cablevision, which is controlled by the Dolan family and also owns a newspaper and TV networks, saw its total revenue increase 8 percent to $1.67 billion. The revenue was in line with estimates.

The company's shares were down 12.5 percent at $15.14 in afternoon trading on the New York Stock Exchange, after falling as low as $14.50 earlier in the session.

(Reporting by Liana B. Baker in New York, editing by Gerald E. McCormick, Dave Zimmerman and Carol Bishopric)

Corrects attribution for quotes in 11th and 12th paragraphs, to Cablevision's Chief Operating Officer Tom Rutledge and not the company's CFO Gregg Seibert. Also corrects year ago earnings figure to $112.1 million.