Comcast Earnings Get a Boost from Sochi Olympics

Gene J. Puskar/AP PHILADELPHIA -- Comcast said Tuesday that its first-quarter net income rose by 30 percent as ad revenue surged at broadcast network NBC, helped by the Winter Olympics in Sochi and Jimmy Fallon's elevation as host of "The Tonight Show." The results beat Wall Street estimates and its shares edged up in morning trading. Comcast (CMCSA) is the largest cable company in the country with 22 million video customers and 21.1 Internet customers. It is in the midst of an expected yearlong review of its $45 billion acquisition of No. 2 rival Time Warner Cable (TWC). Regulators are examining whether the combination would give it undue pricing power over customers and too much leverage with programmers. Its net income in the quarter through March rose to $1.87 billion, or 71 cents a share, from $1.44 billion, or 54 cents a share a year ago. Excluding one-time items, adjusted earnings came to 68 cents a share, beating the 64 cents expected by analysts polled by FactSet. Revenue grew 14 percent to $17.41 billion from $15.31 billion. That's also higher than the $16.99 billion expected by analysts. NBCUniversal revenue grew 29 percent to $6.88 billion while cable services revenue grew 5 percent to $10.76 billion. Olympics broadcast rights boosted NBCU revenue by $1.1 billion. Even excluding the games, broadcast revenue rose 17 percent, helped by Fallon's selection for NBC's late night slot, replacing longtime host Jay Leno. The network was also boosted by more hours of "The Voice" and the popularity of new shows like "The Blacklist." On the cable connections side, Comcast added 24,000 video customers during the quarter, the second quarterly gain in a row following a six-and-a-half year losing streak. However, those gains are likely to come to an end in the current quarter as college students disconnect service at the end of the semester. Comcast added 383,000 high-speed data customers and 142,000 voice customers. The company says the roll-out of its newest X1 set-top box is starting to contribute to better video results. It is now setting up 15,000 to 20,000 boxes a day, up from 10,000 at the end of the year. An improved user interface is helping reduce customer disconnects while boosting video-on-demand spending and increasing uptake of digital video recorder service. Within three years, Comcast hopes the majority of its customers will have X1. Comcast shares rose $1.03, or 2.1 percent, to $50.91 in morning trading. Its shares have fallen 4 percent in regular trading so far this year.

Wall Street bond dealers whipsawed on bearish Treasuries bet

Betting against U.S. government debt this year is turning out to be a fool's errand. Just ask Wall Street's biggest bond dealers.

While the losses that their economists predicted have yet to materialize, JPMorgan Chase & Co. (JPM), Citigroup Inc. (C) and the 20 other firms that trade with the Federal Reserve began wagering on a Treasuries selloff last month for the first time since 2011. The strategy was upended as Fed Chairman Janet Yellen signaled she wasn't in a rush to lift interest rates, two weeks after suggesting the opposite at the bank's March 19 meeting.

The surprising resilience of Treasuries has investors recalibrating forecasts for higher borrowing costs as lackluster job growth and emerging-market turmoil push yields toward 2014 lows. That's also made the business of trading bonds, once more predictable for dealers when the Fed was buying trillions of dollars of debt to spur the economy, less profitable as new rules limit the risks they can take with their own money.

“You have an uncertain Fed, an uncertain direction of the economy and you've got rates moving,” Mark MacQueen, a partner at Sage Advisory Services Ltd., which oversees $10 billion, said. In the past, “calling the direction of the market and what you should be doing in it was a lot easier than it is today, particularly for the dealers.”

CAUGHT SHORT

After surging to a 29-month high of 3.05% at the start of the year, yields on the 10-year note have since declined and were at 2.7% at 11:55 a.m. in New York Monday.

One reason yields have fallen is the U.S. labor market, which has yet to show consistent improvement.

The world's largest economy added fewer jobs on average in the first three months of the year than in the same period in the prior two years, data compiled by Bloomberg show. At the same time, a slowdown in China and tensions between Russia and Ukraine boosted demand for the safest assets.

Wall Street firms known as primary dealers are getting caught short betting against Treasuries.

They collectively amassed $5.2 billion of wagers in March that would profit if Treasuries fell, the first time they had net short positions on government debt since September 2011, data compiled by the Fed show.

'SOME TIME'

The practice is allowed under the Volcker Rule, which limits the types of trades that banks can make with their own money. The wagers may include market-making, which is the business of using the firm's capital to buy and sell securities with customers while profiting on the spread and movement in prices.

While the bets initially paid off after Ms. Yellen said on March 19 that the Fed may lift its benchmark rate six months after it stops buying bonds, Treasuries have since rallied as her subsequent comments strengthened the view that policymakers will keep borrowing costs low to support growth.

On March 31, Ms. Yellen highlighted inconsistencies in job data and said “considerable slack” in labor markets showed the Fed's accommodative polic! ies will be needed for “some time.”

Then on April 16, in her first major speech on her policy framework as Fed chairman, Ms. Yellen said it will take at least two years for the U.S. economy to meet the Fed's goals, which determine how quickly the central bank raises rates.

After declining as much as 0.6% following Ms. Yellen's March 19 comments, Treasuries have recouped all their losses, index data compiled by Bank of America Merrill Lynch show.

“We had that big selloff and the dealers got short then, and then we turned around and the Fed says, 'Whoa, whoa, whoa: it's lower for longer again,'” Mr. MacQueen said. “The dealers are really worried here. You get really punished if you take a lot of risk.”

Economists and strategists around Wall Street are still anticipating that Treasuries will underperform as yields increase, data compiled by Bloomberg show.

While they've ratcheted down their forecasts this year, they predict 10-year yields will increase to 3.36% by the end of December. That's more than 0.6 percentage point higher than where yields are today.

“My forecast is 4%,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank AG, a primary dealer. “It may seem like it's really aggressive but it's really not.”

Mr. LaVorgna, who has the highest estimate among the 66 responses in a Bloomberg survey, said stronger economic data will likely cause investors to sell Treasuries as they anticipate a rate increase from the Fed.

HISTORY LESSON

The U.S. economy will expand 2.7% this year from 1.9% in 2013, estimates compiled by Bloomberg show. Growth will accelerate 3% next year, which would be the fastest in a decade, based on those forecasts.

Dealers used to rely on Treasuries to act as a hedge against their holdings of other types of debt, such as corporate bonds and mortgages. That changed after the credit crisis caused the failure of Lehman Brothers Holdings Inc. in 2008.

They slashed corporate-debt inventories by 76% fro! m the 200! 7 peak through last March as they sought to comply with higher capital requirements from the Basel Committee on Banking Supervision and stockpiled Treasuries instead.

“Being a dealer has changed over the years, and not least because you also have new balance-sheet constraints that you didn't have before,” said Ira Jersey, an interest-rate strategist at primary dealer Credit Suisse Group AG.

While the Fed's decision to inundate the U.S. economy wit