Hughes Lifted By Rise In DirecTV Subscribers, Profits

Hughes Electronics [NYSE: GMH] and its satellite TV subsidiary, DirecTV, last week bucked the industry-downturn trend by revealing strong financial results for the second quarter ended June 30.

Hughes reported that second quarter 2003 revenues increased 8.1 percent to $2.37 billion compared with $2.19 billion in the second quarter of 2002. Operating profit before depreciation and amortization for the quarter increased 167 percent to $404.7 million and operating profit rose to $140 million. That performance marks a dramatic improvement from second quarter 2002 operating profit before depreciation and amortization of $151.6 million and an operating loss of $98.7 million.

Further evidence of the drastic improvement is shown by Hughes’ second quarter 2003 net income of $21.6 million, compared to a net loss of $155.1 million in the same period of 2002. The key driver for the improvement in solid second quarter results appears to be DirecTV, which more than doubled its U.S. operating profit, before depreciation and amortization, to a record $325 million and more than tripled its operating profit to $201 million.

DirecTV’s U.S. operations also achieved revenue growth of more than 16 percent during the second quarter to reach $1.8 billion. These results reflect continued solid subscriber growth of 181,000 net new additions during the second quarter of 2003, a $2.80 increase in ARPU (average monthly revenue per subscriber) of nearly $61, and sharp improvement in operating profit margins. The U.S. operations of DirecTV also attained operating profit growth in the second quarter of 2003 that hit $200.7 million, compared to an operating profit of $60.6 million in the second quarter of 2002.

The strong results spurred an increase in management’s guidance for the financial performance from operations by Hughes and DirecTV’s U.S. business for full year 2003. That upwardly revised guidance affects revenues, operating profit before depreciation and amortization, operating profit and cash flow.

The DirecTV results do not include bankrupt DirecTV Latin America, which continues to undergo a financial restructuring after falling victim to a host of problems that include the devaluation of Latin American currencies, economic fallout in the region and other woes. DirecTV Latin America and its operating companies are continuing regular operations.

However, DirecTV service in Latin America incurred a net loss of 35,000 subscribers in the second quarter of 2003 due primarily to the repercussions from its Chapter 11 reorganization and the economic turmoil in Venezuela. The total number of DirecTV subscribers in Latin America at the end of the second quarter on June 30 was approximately 1,493,000, compared to about 1,669,000 at the same time last year. The result for DirecTV Latin America was a 10.5 percent drop in total subscribers.

Hughes Network Systems (HNS), a satellite data service and set-top box manufacturer, showed improvement during the second quarter but still sustained losses. HNS’ operating loss before depreciation and amortization fell to $9.2 million during the second quarter this year from $27 million for the same quarter of 2002. The company’s operating loss was cut to $29.8 million during the second quarter this year from $43.6 million in the second quarter last year. The smaller losses stemmed from reduced losses in HNS’ residential and SOHO (small office, home office) DirecWay business unit due to heightened efficiencies from an enlarged subscriber base and increased revenues and margins in the set-top box business.

–Paul Dykewicz

(Richard Doré, Hughes, 310/662-9670)