The first quarter brought a mixture of good news and bad for XM Satellite Radio, which recorded another strong increase in its subscriber and revenue bases, but also saw its losses for quarter grow wider and the beginning of two federal inquiries.
Washington-based XM said it added 568,902 new subscribers in the quarter ending March 31, bringing the company’s total number of subscribers to more than 6.5 million, up 72 percent from the 3.78 million it had in the first quarter 2005.
Revenues were up significantly for the quarter, registering at $208 million, compared to $103 million in first quarter of 2005. But the company also posted a net loss of $149.2 million, compared to a loss of $119.9 million for the same time period in 2005.
The larger loss occurred at a time when the company is making strides curbing the amount of money it spends to woo new subscribers. Subscriber acquisition costs were a cause of some concern among investors during the previous quarter. In response XM reduced its cost per gross addition, the average cost of adding one new subscriber, to $94. That figure had been as high as $141 as recently as the fourth quarter of 2005.
During an April 27 conference call with investors, Hugh Panero, the company’s chief executive officer, attributed revenue growth to the company’s ability to return to a normal balance between general retail sales of subscriber hardware and the sale of subscriptions through auto dealers. Automotive sales had struggled in previous quarters because of increased gas prices and other factors, company executives said during previous conference calls.
During the call company officials also disclosed that XM has received two letters of inquiry from U.S. government regulators, one from the Federal Communications Commission (FCC) and the other from the Federal Trade Commission (FTC), both received April 25.
According to an April 27 filing with the U.S. Securities and Exchange Commission, the FCC letter said that its Office of Engineering and Technology Laboratory has tested the Delphi XM SKYFi2 radio and determined that its transmitter is not in compliance with emission limits.
Gary Parsons, XM’s chairman of the board, said during the call that XM has received minimal complaints from customers but would be investigating the situation over the next 30 days.
The other letter, from the FTC, said that the commission is checking to see whether the company has complied with various laws related to marketing, including rebates, telemarketing, billing, free trial periods and customer complaints. XM officials said they were unclear at this time what specifically was being referenced by the FTC.
“To our knowledge, we comply fully with all laws under the purview of the FTC,” Panero said.
While XM released no numbers related to its market share in comparison to competitor Sirus Satellite Radio of New York, it said that while Sirius received an influx of subscribers with the launch of Howard Stern’s radio show in January, the two companies’ market shares now are leveling off.
“We’ve seen our market share gradually increase and returning to more normalized levels,” Panero said. “I think you’re going to see a pretty even marketplace during second quarter and beyond.”
Sirius will announce its own financial results May 2.
XM had announced May 26 an unusual deal with its radio disc jockeys Opie & Anthony, who now will appear on both selected CBS terrestrial radio stations and XM, which Panero said would bring the company additional marketing opportunities.
Raytheon
Raytheon Co. saw a 73-percent jump in profits during the first quarter of 2006, with net income coming in at $287 million compared to $166 million during first-quarter 2005.
The company’s net sales were up 4 percent to $5.2 billion, from $4.9 billion in first quarter 2005.
Both Raytheon’s Integrated Defense Systems and Intelligence and Information Systems saw sales growth, as did Space and Airborne Systems, which posted sales of $1.02 billion, compared to $967 million during the same time period last year. The company’s Advanced Targeting Forward-Looking Infrared program primarily accounted for the growth in space, according to an April 27 financial release from Raytheon.
The company spoke favorably about business in the homeland security realm, saying it expects to see a 40-percent increase in 2006 in this arena. Other companies in the sector have complained that homeland security revenues have not reached expected heights since the creation of the Department of Homeland Security (DHS).
“I think 40-percent growth is not too bad,” said William Swanson, chairman and chief executive officer of Waltham, Mass.-based Raytheon. “We’re happy with our relationship with DHS.”
Overseas during 2006, Swanson said the company expects more activity in missile defense in Japan, and expects to build a large ground-based radar system in that part of the world this year as well.
“The international programs feel pretty good to us,” Swanson said.
Northrop Grumman
Aerospace sales at Northrop Grumman were a bright spot in the first quarter, Chairman Ron Sugar told investors on an April 25 conference call. Sugar said first-quarter aerospace sales of $2.29 billion represented a 7- percent increase compared to the $2.15 billion in first-quarter aerospace sales in 2005.
The aerospace sector was boosted by high sales in the company’s Integrated Systems division and in satellite communications, while missile & space defense programs and civil space programs were down slightly, according to an April 25 financial release from Northrop Grumman.
Sugar said that the company still is waiting for an Air Force review of problems on the National Polar-orbiting Operational Environmental Satellite System (NPOESS). The Air Force already has notified Congress about sizable cost overruns on the program. Sugar acknowledged that Northrop Grumman experienced difficulties delivering subsystems for the program.
“We’re working hard to make sure those things work right,” Sugar said.
Overall, Los Angeles-based Northrop Grumman saw a decline in revenues during first quarter 2006, which the company largely attributed to a slump in its shipbuilding business.
Revenue for the quarter ending March 31 was $7.18 billion, down from $7.45 billion during first-quarter 2005. Net income was down as well, to $358 million, from $409 million in first-quarter 2005.
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