Zacks Analyst Blog Highlights: Microsoft, BlackRock, Ameriprise Financial, Time Warner Cable and Comcast

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Jan 28, 2011, 09:38 ET

CHICAGO, Jan. 28, 2011 /PRNewswire/ -- Zacks.com Analyst Blog features: Microsoft (Nasdaq: MSFT), BlackRock Inc. (NYSE: BLK), Ameriprise Financial Inc. (NYSE: AMP), Time Warner Cable Inc. (NYSE: TWC) and Comcast Corp. (Nasdaq: CMCSA).

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Here are highlights from Thursday's Analyst Blog:

Microsoft Beats on Earnings, Revenue

Microsoft (Nasdaq: MSFT) delivered a solid quarter with earnings per share coming in at 77 cents, well ahead of the Zacks Consensus Estimate of 68 cents. It was a 28% increase over the same quarter last year.

Revenue for the second quarter of 2011 was $19.95 billion, up 15% year-over-year, and ahead of consensus at $19.12 billion. Sales were particularly strong in the Entertainment & Devices Division, which were up a whopping 55%. Much of this growth was fueled by the successful launch of the Kinect sensor for Xbox 360, with more than 8 million units sold in just 60 days.

Meanwhile, the company's Business Division saw revenue growth of 24% driven by strong demand for Office 2010.

COO Kevin Turner noted in the press release that "[b]usiness demand for our productivity and infrastructure products and cloud solutions is strong. Office had a huge quarter, exceeding everyone's expectations, [and] Windows 7 continues to be the fastest-growing operating system in history."

The tech giant also announced that it had sold more than 300 million Windows 7 licenses, and Windows 7 is now running on over 20% of Internet-connected PCs. The company also launched Windows Phone 7 in 30 countries during the quarter but did not give any sort of sales breakdown.

Returning Value to Shareholders

Microsoft spent a remarkable $5.1 billion in the quarter buying back stock in addition to paying out $1.3 billion in dividends. The company still has an incredible $41.25 billion in cash, cash equivalents and short-term investments on its balance sheet as of December 31.

Sales Breakdown

Revenue for the second quarter of 2011 was divided as follows:

Windows & Windows Live Division: 25%

Server and Tools: 22%

Online Services Division: 3%

Microsoft Business Division: 30%

Entertainment and Devices Division: 19%

BlackRock Surpasses Estimates

BlackRock Inc.'s (NYSE: BLK) fourth quarter 2010 operating earnings of $3.42 per share were substantially ahead of the Zacks Consensus Estimate of $2.90. This also surpassed the prior quarter's earnings of $2.75 and the prior-year quarter's earnings of $2.39.

For full-year 2010, BlackRock reported operating earnings of $10.94 per share beating the Zacks Consensus Estimate of $10.39 and the prior year's earnings of $7.13.

Operating results for the quarter excluded restructuring charges and BGI transaction and integration costs and compensation expense associated with certain LTIP awards.

GAAP net income came in at $657 million or $3.35 per share for the reported quarter compared with $551 million or $2.83 per share in the prior-year quarter and $256 million or $1.62 per share in the year-ago quarter. For fiscal 2010, GAAP net income was $2,063 million or $10.55 per share, up from $875 million or $6.11 per share in 2009.

Better-than-expected results were primarily aided by a strong growth in top line, benefits of the BGI acquisition and improved equity markets, which were offset partially by higher operating expenses.

Quarter in Detail

On an operating basis, BlackRock's total revenue in the quarter increased 20.6% from the prior quarter and 65.1% year over year to $2.36 billion, beating the Zacks Consensus Estimate of $2.27 billion. For full year, total revenue was $8.10 million compared with $4.12 million in 2009, substantially missing the Zacks Consensus Estimate of $8.38 billion.

GAAP total expenses climbed 12% sequentially and 34% year over year to $1.55 billion. The increase reflects a significant rise in employee compensation and benefits expenses, general and administration expenses and direct fund expenses.

BlackRock's operating income on a GAAP basis stood at $940 million compared with $707 million in the prior quarter and $389 million in the prior-year quarter.

Asset Position

Assets under management totaled $3.561 trillion as of December 31, 2010, up 3% sequentially. The increase was driven by market and investment performance of $132.1 billion and net new business of $23.9 billion, which were partially offset by merger-related outflows of $38.7 billion.

Our Take

Though there are concerns related to the sluggish equity market recovery, BlackRock's businesses – BlackRock Solutions and the advisory business – will continue to be benefited from the growing need of risk management solutions within the financial industry.

BlackRock's major competitor – Ameriprise Financial Inc. (NYSE: AMP) is scheduled to release its fourth quarter results on February 2.

BlackRock currently retains a Zacks #1 Rank, which translates into a short-term Strong Buy rating.

Fantastic 4Q for Time Warner Cable

Time Warner Cable Inc. (NYSE: TWC) reported excellent fourth quarter of 2010 financial results, which exceeded the Zacks Consensus Estimates. The company witnessed growth across all revenue segments.

In synergy with a record high free cash flow and stable capital spending, Time Warner Cable increased its quarterly dividend rate by 20% to 48 cents per share. This is the second consecutive quarter where management has taken massive steps to raise shareholders value.

In the previous quarter, the company announced that the Board of Directors of Time Warner Cable has authorized a substantial share buy-back program of $4 billion. The company repurchased 0.6 million shares in the fourth quarter for $43 million.

Quarterly GAAP net income was $392 million or $1.09 per share compared with a net income of $322 million or 91 cents per share in the prior-year quarter. Fourth quarter 2010 EPS of $1.09 surpassed the Zacks Consensus Estimate of $1.01.

Revenue

Total revenue in the quarter increased 5.9% year over year to $4,801 million and exceeded the Zacks Consensus Estimate of $4,749 million. This was attributable to an increase in residential subscription revenue, commercial subscription revenue and advertising revenue.

Margins

Adjusted operating income before depreciation and amortization (OIBDA), climbed 1.6% year over year to $1,738 million. This was primarily attributed to healthy growth in the top-line, offset by higher video programming, marketing and voice costs.

Video programming expense was $1.1 billion (up 7.2% year over year), employee expenses were $970 million (up 3.9% year over year), marketing cost was $166 million (up 7.1% year over year) and voice cost was $172 million (up 5.5% year over year). GAAP operating income grew 11.6% year over year to $994 million,driven byhigher adjusted OIBDA, partially offset by higher depreciation expense.

Cash Flow

Operating cash flow for fiscal 2010 was $5,218 million compared with $5,179 million in the year-ago period. Free cash flow (cash flow from operations less capital expenditure together with principal payment for capital lease and intangible assets) for the same period was $2,288 million compared with $1,948 million in the prior-year period.

Balance Sheet

At the end of fiscal 2010, Time Warner Cable had $3,047 million of cash & marketable securities compared with $1,048 million at the end of fiscal 2009. Total debt, at the end of fiscal 2010 was $23,121 million compared with $22,331 million at the end of fiscal 2009. At the end of fiscal 2010, debt-to-capitalization ratio was 0.71 compared with 0.72 at the end of fiscal 2009.

Subscription Segment

Total Subscription revenue in the fourth quarter, increased 4.6% year over year to $4,532 million, attributable to a 3.5% increase in residential subscription revenues and a 23.0% increase in commercial subscription revenues.

Within this segment, Video revenue was $2,731 million (up 1.6% year over year), High-speed Data revenue was $1,280 million (up 10.5% year over year) and Voice revenue was $521 million (up 7.6% year over year).

Advertising Segment

Advertising revenue increased 33.8% year over year to $269 million. Political advertisements was the prime revenue driver within this segment.

Subscriber Statistics

During the fourth quarter of 2010, Time Warner Cable lost 63,000 Revenue Generating Units but also witnessed a net addition of 25,000 Primary Services Unit. At the end of the reported quarter, Basic Video subscribers were 12.422 million, down 141,000 sequentially. Residential High-speed Data subscribers were 9.469 million, up 83,000 sequentially.

Commercial High-speed Data subscribers were 0.334 million, up 11,000 sequentially. Residential Digital Phone subscribers were 4.385 million, up 61,000 sequentially. Commercial Digital Phone subscribers were 0.111 million, up 11,000 sequentially.

During the same quarter, Time Warner Cable added 72,000 Triple play subscribers to its existing 3.680 million but lost 39,000 Double play subscribers from its subscriber base of 4.866 million. The company also lost 111,000 Single play subscribers from its 5.950 million customers.

Recommendation

After Comcast Corp. (Nasdaq: CMCSA), Time Warner Cable is the second largest cable MSO in the U.S. The company has decided to remain as a pure-play cable operator, concentrating more on superior content distribution and delivery.

We maintain our long-term Neutral recommendation for Time Warner Cable. Currently, it has a Zacks #3 Rank on the stock, implying a short-term Hold rating.

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