Liberty Global plc (LBTYK +0.08%) was expecting 2017 to be a big growth year as it consolidated its power in European telecommunications and brought new products to market. And that vision may still take place, it's just taking a little longer than planned.
First-quarter results released this week showed there are some signs of improvement, and 2017 should still be a growth year. But not every market was growing as quickly as planned, highlighted by the U.K.'s tepid growth in the quarter.
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Liberty Global plc results: The raw numbers
| Metric | Q1 2017 | Q1 2016 | Year-Over-Year Change |
|---|---|---|---|
| Sales | $3.52 billion | $4.28 billion | (17.9%) |
| Operating cash flow | $1.60 billion | $1.99 billion | (19.5%) |
| Free cash flow | ($332.6 million) | ($104.9 million) | N/A |
Data source: Liberty Global earnings release. Includes only European operations.
What happened with Liberty Global plc this quarter?
The results above look bad on the surface, but they're due more to accounting changes than to a deterioration in the business. Here's a look at some of the highlights to keep in mind from the quarter:
- Most of the decline in revenue was driven by the deconsolidation of Liberty Global's joint venture in the Netherlands, VodafoneZiggo. Without this financial change, revenue was up 2% on a rebased basis.
- Organic customer additions in Europe were 244,300, which included a loss of just 15,000 revenue-generating units on the video side. Mobile and broadband have seen consistent growth the last few years, but video has been where the entire industry has struggled.
- Rebased revenue growth in the U.K. and Ireland, which accounted for 43% of total group revenue, grew 2% on a rebased basis. And rebased operating cash flow growth was just 1%.
- Germany had rebased revenue growth of 6%, and a 5% increase in operating cash flow growth.
- Management is targeting $2 billion in share buybacks by the end of 2017.
What management had to say
Management said conditions in the U.K. and Belgium were weaker than expected, causing the reduction in operating cash flow guidance from 6% to 7% to a new expectation of 5% for 2017. While this is a surprise reduction, management did say they expect second-half performance to improve as new products -- like a 4K set-top box and 4G quad-play offering -- hit the market.
Looking forward
A steady increase in the customer base is helping drive Liberty Global's results, and with 4K TV and more bundled offerings coming, there will be more opportunities for growth. Short-term, the reduction in operating cash flow guidance is a bit worrisome, but it sounds like it's more of a delay in expected growth than a fundamental flaw in the business model.
Liberty Global has the right set of products for the modern economy; with its customer base expanding, 2017 should be another solid year for shareholders, despite the small reduction in expected growth.
