DirecTV’s Outlook for 2013

After DirecTV ($DTV) reported great earnings yesterday, the stock opened higher, but the shares retreated throughout the day.

I think traders were unnerved by the company’s loss on Venezuela’s currency devaluation. According to the earnings call, the devaluation will cost DTV “approximately $160 million.”

Still, the company has a fairly upbeat outlook. DirecTV specifically said, “we’re forecasting earnings per share to be $5 or greater in 2013.”

Here are some key bits from the earnings call:

Next I would like to make a few comments about our consolidated outlook. Let me begin by providing some additional color on our EPS outlook for 2013. Depreciation expense at DIRECTV Latin America and DIRECTV U.S. will increase by roughly 30% and 10%, respectively, compared to 2012. In addition, our effective tax rate will also be a few percentage points higher in 2013 as our 2012 rate benefited from the completion of a prior year audit, and we don’t expect to have benefit going forward. As a result, we’re expecting our effective tax rate this year to be in the mid-to-high 30% range. Having said that, excluding onetime items such as the Venezuela pretax devaluation charge of approximately $160 million, our guidance that we provided at our Investor Day in December 2010 remains intact as we’re forecasting earnings per share to be $5 or greater in 2013. Free cash flow will likely come in lower than 2012 levels due mostly to the impact of the Venezuelan devaluation, as well as from higher taxes and interest. Cash taxes are expected to be higher in 2013 due to greater earnings before taxes, and a higher cash tax rate is expected to be in the mid-to-high 30% range, primarily due to an expected tax payment in 2013 upon the close of a tax audit, reversal of depreciation of benefits associated with prior year economic stimulus programs and the absence of a state tax credit carryforward that we had in 2012.

Finally, in terms of DIRECTV’s strategy for returning capital, I’d like to first point out that our top priority for creating shareholder value remains to reinvest in our businesses. And as you heard from Mike earlier, if opportunities do not arise that meet our regular strategic and financial hurdles, we will continue our capital allocation strategy for share repurchases as we believe DIRECTV stock remains significantly undervalued. As such, on Tuesday, our Board of Directors authorized a new $4 billion share repurchase program and terminated the balance of roughly $860 million that remained from the previous authorization. We’re expecting that this new authorization will provide sufficient funding to support our buyback program through early next year.

All in all, we entered 2013 from a position of strength, thanks to our strong balance sheet, cash flow, competitive position and quality subscriber base across the Americas. And if we accomplish all of our targets and deliver the expected financial results, I believe we will continue to lead the industry in revenue and earnings growth, as well as creating substantial shareholder value.

Posted by on February 15th, 2013 at 9:21 am


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