A month has gone by since the last earnings report for Cincinnati Bell (CBB). Shares have lost about 17.8% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Cincinnati Bell due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Cincinnati Bell Q1 Loss Widens Y/Y, Revenues Increase
Cincinnati Bell reported lower-than-expected first-quarter 2019 financial results, wherein both the top line and the bottom line missed the respective Zacks Consensus Estimate.
On a GAAP basis, net loss for the quarter was $29.5 million or loss of 59 cents per share compared with net loss of $10.9 million or loss of 26 cents per share in the year-ago quarter. The year-over-year deterioration despite top-line growth was mainly due to higher operating expenses.
Non-GAAP net loss came in at $24.1 million or loss of 48 cents per share compared with net loss of $8 million or loss of 19 cents per share in the prior-year quarter. The bottom line was wider than the Zacks Consensus Estimate of a loss of 21 cents.
Quarterly revenues grew 28.4% year over year to $379.6 million resulting from investments in dense metro fiber and owing to expansion in the company’s IT services footprint. The top line, however, missed the consensus estimate of $387 million.
Revenues from Entertainment and Communications segment improved 43.7% year over year to $250.3 million, primarily driven by higher sales in fiber businesses. Cincinnati Bell’s merger with Hawaiian Telcom has significantly expanded its high-quality metro fiber asset portfolio to meet the increased need for bandwidth and support the demand for IoT ecosystems.
IT Services and Hardware segment revenues increased 6.8% year over year to $136.3 million, backed by contributions from Hawaiian Telcom. Cincinnati Bell’s transformation from traditional hardware reseller to service oriented IT solutions provider continues to generate healthy momentum across its enhanced North American footprint. The move has resulted in client diversification while optimization of higher-margin service revenue opportunities.
Overall operating income was $10.1 million, compared with $24.2 million in the year-ago quarter due to higher operating costs. Adjusted EBITDA increased $18.8 million year over year to $97.6 million.
Cash Flow and Liquidity
During the first quarter, Cincinnati Bell generated $56.8 million of cash from operating activities compared with $58.5 million in the year-ago period. As of Mar 31 2019, the regional telephone company’s net debt (non-GAAP) totaled $1,928.4 million.
Cincinnati Bell has reiterated its guidance for full-year 2019, reflecting expected contributions from Hawaiian Telcom. Notably, the company expects revenues to be between $1,515 million and $1,575 million, and adjusted EBITDA in the range of $400-$410 million.
Cincinnati Bell is working toward expanding its portfolio of next-generation fiber offerings, while securing value for customers and shareholders. This positions the company at the forefront of innovation in telecommunications for future growth. Cincinnati Bell has reorganized the business and manages two distinct yet complementary operations. An IT Services business with a diverse customer reach and growing recurring revenue base, and a network business with attractive fiber-centric footprint with expanding Internet market share. The company is focused on augmenting its fiber network and increasing its IT solutions business along with a strategic approach to capital allocation.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted -12.5% due to these changes.
Currently, Cincinnati Bell has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, Cincinnati Bell has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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