Charter's revenue worry: Vogel cuts staff and two senior execs exit as analyst questions hit stock

Cable World, Jan 14, 2002 by Staci D. Kramer

Charter Communications took another beating in the market amid concerns about slowing revenue growth.

Meanwhile, the company reorganized its operating divisions. Two senior executives and a board member have left the company, marking the first key departures since CEO Carl Vogel joined the company last October, stressing management stability. Another 30 people lost their jobs as part of a restructuring.

Vogel, who became CEO after Jerry Kent left because of a conflict with majority shareholder billionaire Paul Allen, told Cable World in an e-mail that the company was doing well. "We reiterated our financial guidance on Monday, we raised $900 million on Tuesday [in a successful debt offering] and we are in strong financial shape with significant liquidity serving 7 million customers in great markets."

The cuts come a week after Cablevision Systems announced plans to cut its workforce by 600 people, suggesting that the economic slowdown is taking a bite out of the cable business, traditionally thought of as nearly recession-proof.

But the changes at Charter are taking place at a time when analysts and investors are concerned that cash flow, as measured in earnings before interest, taxes, depreciation and amortization (EBITDA), may be growing at a slower pace than last year.

Morgan Stanley analyst Richard Bilotti, who met with executives at Charter's headquarters in St. Louis late last year, cut his rating on Charter to "outperform" from "strong buy," saying in a research note that he expects first-quarter cash flow growth of about 9%. That's below the 9.7% cash flow growth the company posted in the first quarter of 2001 and below the 10% to 11% EBITDA growth Charter executives expect to report for the full-year 2001. The report helped drive Charter shares as low as $12.99 on Thursday, a drop of nearly 10% and the lowest level in months, before closing at $13.66, down 98 cents, or 6.7%. The stock recovered somewhat Friday afternoon. Charter plummeted last year, failing 43% in a month's time, culminating with CEO Kent's departure in September.

Not all analysts are following Bilotti's lead. Bear Stearns analyst Raymond Katz told clients to buy Charter on Thursday. "I don't see a reason to panic," he said. Of Vogel's tenure, he says, "I haven't really seen a major difference except a great focus on revenue out of the homes instead of increasing the homes. It's still too early to tell." Also last week Salomon Smith Barney analyst Niraj Gupta reiterated his "buy, high risk" rating and called the shares "attractive."

The reorganization and executive changes could be viewed as Vogel's first attempt at putting his stamp on the company. But the moves also appear to be aimed at cutting costs and show a willingness to make needed changes.

In his e-mail, Vogel resisted calling last week's personnel moves a restructuring.

The highest-ranking executive departing is Western division SVP James H. "Trey" Smith III, who told Cable World he left over a difference in strategy. Until the reorganization, Smith and Eastern SVP David McCall each were in charge of six regions. The creation of a new Central division headed by William Shreffler and based at corporate headquarters in St. Louis meant each division would cover less territory. The Central and Western divisions now each have three regions while the Eastern division has four. Two regions were folded into two others, reducing the total number of regions to ten.

Former Marcus Cable executive J. Christian Fenger succeeds Smith. Fenger was SVP-operations for the North Central Region based in Madison, Wis. He will run the Western division from Madison.

"We have promoted certain of our strong performers as a result of Trey Smith's resignation and flattened our operating structure in an effort to be more efficient in our decision making," Vogel's e-mail said.

The shift in division operations led to the closing of the Western division office in Denver, where Smith was based. Some two dozen people are affected by the closing. Charter spokesman Andy Morgan said Charter is trying to find places for them elsewhere in the company.

Vogel lives in Denver, but the company has denied speculation that Charter might move its headquarters there. An accounting office remains, which Vogel can use when he is in town.

In addition, early last week Wes Hart, VP-advertising sales, left as a result of "a mutual decision," according to a company spokesman. Hart, who joined Charter from Marcus three years ago, told Cable World: "Unfortunately my vision for ad sales and the company's vision for ad sales were not the same."

Charter is searching, for Hart's replacement and expects to have someone in place later this month, said Charter spokesman Morgan. The job will be handled by director of new media David Downey in the interim.

At roughly the same time, five positions were eliminated when the corporate marketing department was restructured to streamline operations. Dottie Ewing, head of marketing for Los Angeles, also left.