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T-Mobile (TMUS) Q2 Earnings Beat, Revenues Grow, Stock Up

Zacks Equity Research

T-Mobile US, Inc. TMUS delivered solid second-quarter 2019 results, with record-low branded postpaid phone churn and record-high service revenues. The company continues to successfully translate customer growth into industry-leading service revenue growth. Both the top line and the bottom line increased on a year-over-year basis. Following the results, share price increased 5.4% in Friday’s trading session to eventually close at $84.25. 

Net Income

Net income for the June quarter was $939 million or $1.09 per share compared with $782 million or 92 cents per share in the year-ago quarter. The year-over-year improvement was largely attributable to higher operating income and lower interest expenses.

Adjusted earnings per share came in at $1.29 compared with 92 cents reported in the year-ago quarter, beating the Zacks Consensus Estimate by 30 cents.

T-Mobile US, Inc. Price, Consensus and EPS Surprise

T-Mobile US, Inc. Price, Consensus and EPS Surprise

T-Mobile US, Inc. price-consensus-eps-surprise-chart | T-Mobile US, Inc. Quote

Revenues

Quarterly total revenues increased 3.9% year over year to $10,979 million driven by growth in service revenues. However, the momentum was partly offset by decrease in equipment revenues. The top line lagged the consensus estimate of $11,139 million.

Segment Results

Total Service revenues were up 6.2% year over year to a record-high of $8,426 million, representing best quarterly performance ever. T-Mobile expects to lead the industry for the 21st consecutive quarter in a year-over-year service revenue percentage growth. Within this segment, branded postpaid revenues were $5,613 million, up 8.7% year over year.

The U.S. wireless carrier registered 1.1 million branded postpaid net additions and 710,000 branded postpaid phone net additions in the quarter, up 9% and 3%, respectively, year over year. Branded postpaid phone average revenue per user (ARPU) declined to $46.10, down 0.9%. This was primarily due to reduction in regulatory program revenues from the adoption of tax inclusive plans, the impact of ongoing growth in Netflix offering, reduction in certain non-recurring charges, and the growing success of new customer segments and rate plans, including Business, partly offset by higher premium services revenue.

Branded prepaid revenues were $2,379 million, down 1% year over year. Branded prepaid ARPU declined to $37.46, down 2.7%, mainly due to dilution from promotional rate plans and growth in Amazon Prime offering, partly offset by increase in certain non-recurring charges. Wholesale revenues were $313 million, up 13.8% while roaming and other service revenues were $121 million, up 34.4%. Revenues from Equipment totaled $2,263 million, down 2.7% year over year. Other revenues were $290 million, down 7.9%.

Other Details

T-Mobile reported record second-quarter adjusted EBITDA of $3,461 million compared with $3,233 million in the prior-year quarter on the back of higher service revenues. However, this was partly offset by higher selling, general and administrative expenses, and higher cost of services expenses. Total operating expenses increased from $9,121 million to $9,438 million year over year. Operating income increased to $1,541 million from $1,450 million reported in the year-ago quarter, backed by top-line growth.

Cash Flow & Liquidity

During the first six months of 2019, T-Mobile generated $3,539 million of net cash from operations compared with $2,031 million in the year-ago period. Free cash flow for the same period was $1,787 million compared with $1,442 million in the prior-year period. As of Jun 30, 2019, the company had $1,105 million in cash and equivalents with $10,954 million of long-term debt.

Outlook

Owing to such compelling second-quarter results, T-Mobile has offered a bullish guidance for full-year 2019 with expectation of branded postpaid net customer additions of 3.5-4 million (up from the previous guidance of 3.1-3.7 million). Adjusted EBITDA is anticipated between $12.9 billion and $13.3 billion, which includes leasing revenues of $550 million-$600 million, (up from the prior guidance of 12.7 billion and $13.2 billion). Cash purchases of property and equipment, including capitalized interest, are expected at the very high end of $5.8-$6.1 billion range.    

Going Forward

T-Mobile has cleared most of the regulatory and shareholder approvals for its pending merger with Sprint Corp. S. Its customer growth will continue to accelerate and benefit from the investments in network and customer experience. The company boasts one of the fastest LTE networks in the industry realizing average 4G LTE download speeds of 33.4 Mbps, and average 4G LTE upload speeds of 12.1 Mbps.

Covering more than 325 million people with 4G LTE, T-Mobile is building out standards-based 5G across the country. T-Mobile continues to invest in its network and prepare for nationwide 5G with the aggressive rollout of its 600 MHz spectrum. It is on track to launch the first nationwide 5G network available next year. The company has introduced 5G millimeter wave network in six cities including New York and Los Angeles.

Zacks Rank & Stocks to Consider

T-Mobile currently has a Zacks Rank #3 (Hold). A couple of better-ranked stocks in the industry include U.S. Cellular Corp. USM, sporting a Zacks Rank #1 (Strong Buy), and Cogent Communications Holdings, Inc. CCOI, carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

U.S. Cellular surpassed earnings estimates in each of the trailing four quarters, the average positive surprise being 79.3%.

Cogent Communications has long-term earnings growth expectation of 8%.

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