Time Warner Cable Inc. reported a small decline in its third-quarter earnings Thursday, falling shy of Wall Street's expectations as it continued to lose subscribers to its video service.
Like other cable companies, Time Warner has been working on growing its Web-based video service to attract customers who are increasingly turning to the Internet to watch movies and television shows. But the nation's second biggest cable company continued to see a defection of video customers even as its high-speed Internet subscriber base grew.
Cable TV providers have been losing subscribers to satellite TV companies and phone-company TV services for years. But in the second quarter of 2010 the overall pay-TV industry lost customers for the first time.
Chairman and CEO Glenn Britt said Time Warner Cable showed "steady financial progress" in the third quarter, helped by residential broadband and business services. He added that the company saw stronger subscriber results in August and September.
But this was not enough to appease investors. Time Warner's stock dropped $4.69, or 6.6 percent, to $65.94 in midday trading. The stock is nearly flat year-to-date, compared with a roughly 1 percent decline for the Standard & Poor's 500 index.
Time Warner Cable said its net income fell to $356 million, or $1.08 per share, in the three months that ended Sept. 30. That's down 1 percent from $360 million, or $1 per share, in the same period a year earlier.
Revenue grew 4 percent to $4.91 billion from $4.73 billion.
Analysts polled by FactSet were expecting slightly higher earnings of $1.13 per share on revenue of $4.95 billion.
Time Warner Cable said its residential services revenue climbed 2 percent to $4.3 billion. Business services revenue jumped 35 percent to $387 million. A growth in the number of high-speed data subscribers helped boost results. Advertising revenue fell 3 percent to $216 million.
The company said its costs grew 3 percent to $3.91 billion from $3.81 billion. Time Warner attributed the higher operating costs mainly to higher employee costs and video programming expenses.
Time Warner lost about 128,000 residential video subscribers during the quarter, ending the period with about 11.9 million. It gained about 89,000 residential high-speed data customers, ending the quarter with 9.8 million.
Collins Stewart analyst Thomas Eagan called the quarter's results "mixed but improved" from the second quarter. He kept a "Buy" rating on the company's stock
Time Warner is the first big cable company to report results for the quarter, and its results could provide a window into trends at the U.S. cable industry leader Comcast Corp., which reports next week.