Why Charter’s Core Operating Profitability Improved in 1Q16

In the rest of this series, we’ll look at some key financial and operating aspects of Charter Communications’ (CHTR) performance in 1Q16. Let’s start with the cable company’s profitability.

The growth trend in Charter’s core operating profitability further strengthened during the quarter. Charter’s adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) increased ~10.4% YoY (year-over-year) to reach ~$0.88 billion in 1Q16. In 4Q15, this metric increased ~7.5% YoY. Note that according to the company, “Excluding transition costs in the first quarters of 2016 and 2015, Adjusted EBITDA grew by 10.2% year-over-year.”

As you can see in the above bar graph, in terms of consensus versus actual performance, Wall Street’s consensus EBITDA figures for Charter were mostly in line with the actual adjusted figures in 1Q16. The positive surprise for this core operating profitability was at ~0.3% in 1Q16. Note that in 1Q15, the negative surprise for the metric was at ~3.5%.

Charter’s adjusted EBITDA margins continued to strengthen in 1Q16. The company’s adjusted EBITDA margin expanded to ~34.9% in 1Q16 from ~33.9% in 1Q15. It’s worth noting that earlier in 4Q15, this core profitability parameter was at ~36.2% compared to ~35.8% in 4Q14.

Instead of taking direct exposure to stocks of some of the largest US cable players, you can consider a diversified exposure to the space by investing in the SPDR S&P 500 ETF (SPY). Comcast (CMCSA), Time Warner Cable (TWC), and Cablevision (CVC) made up ~1.2% of the ETF at the end of March 2016.

Next, let’s look at Charter’s revenue growth compared to the 1Q16 expectations.