Cablevision Systems Corp. plans to increase its 2012 spending budget to improve its Internet services but will not be increasing prices this year, sending shares down as much as 11 percent on Tuesday.
The New York-area cable provider is grappling with the incursion of Verizon Communications Inc into its home market as well as the departure of two of its senior executives late last year.
Like larger rivals Time Warner Cable Inc. and Comcast Corp., it also faces a tough economy that discourages people from shelling out for extensive cable TV packages and it increasingly relies on Internet services to drive revenue growth.
In addition to the planned spending increases, the company surprised investors on a conference call by saying that free cash flow would be lower this year than in 2011.
"Management's guidance to higher capital expenditures in 2012, and lower free cash flow, is particularly problematic given Cablevision's already heavy debt load," said Bernstein Research analyst Craig Moffett.
Cablevision had about $11.2 billion in debt as of Dec. 31, 2011, according to company materials.
There will be no price increases for customers in 2012, Cablevision executives told analysts on the conference call.
CEO James Dolan did not specify the amount by which capital expenditures will rise this year. In 2011, Cablevision's total cable capital spending was $654 million.
Some of the increased spending will go toward improving its broadband network.
Dolan called 2012 "a year of investment, both in capital spending and operating execution."
Chief Financial Officer Gregg Seibert said the company's project to increase the speed of its broadband Internet service should be finished by the end of the first quarter.
Executives provided no details on Tuesday on whether they would be hiring more senior executives. Dolan said he would remain in charge of operations.
Cablevision's longtime chief operating office, Tom Rutledge, left the company in December for smaller rival Charter Communications. Another senior executive, John Bickham, the president of Cablevision's cable operations, also stepped down last year.
"The management team has big holes," said analyst Moffett.
BTIG analyst Richard Greenfield said in a research note that he is skeptical of Dolan running the company's operations and wants more details on his plan.
"We simply do not have enough confidence in Jim Dolan to drive free cash flow growth in 2013 and beyond," Greenfield said.
Cablevision said fourth-quarter net income fell to $60.5 million, or 22 cents per share, from $114.0 million or 39 cents a share a year earlier. The company's EPS missed Wall Street estimates by a penny, according to Thomson Reuters I/B/E/S.
Revenue rose 8 percent to $1.69 billion. Wall Street analysts had expected $1.68 billion.
Cablevision, which mainly serves the New York area but now has operations in Montana and Wyoming, said it lost 14,000 video customers in the quarter. Wall Street analysts on average had expected a loss of 18,000, according to data compiled by StreetAccount.
Cablevision did not provide any revenue or specific earnings forecast for the year.
Cablevision, which is controlled by the Dolan family and also owns a newspaper and a TV station, said it generated $154.10 in monthly revenue per subscriber in the fourth quarter, up $2.39 from the third quarter.
It added 20,000 high-speed data customers. Analysts were expecting it to add 12,000 Internet customers, according to StreetAccount.
At the end of the quarter the company had 3.25 million video subscribers and 2.97 million Internet customers.
Cablevision shares were down 9.4 percent at $14.17 on Tuesday afternoon, off an earlier low at $13.92. The shares rose as much as 6.3 percent early in the day, but then reversed on news of the planned spending increases.
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