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Telephone and Data Systems (TDS) Q3 Earnings Miss Estimates

Zacks Equity Research

Telephone and Data Systems, Inc. TDS reported mixed third-quarter 2019 results, wherein the top line surpassed the Zacks Consensus Estimate but the bottom line missed the same. However, significant progress in fiber markets, better network quality with faster broadband connections and noteworthy penetration in ILEC markets helped in boosting customer demand.

Net Income

The parent of U.S. Cellular and TDS Telecom’s net income for the September quarter came in at $18 million or 15 cents per share compared with $46 million or 41 cents per share in the year-ago quarter. The year-over-year decline was primarily driven by higher operating expenses. The bottom line missed the Zacks Consensus Estimate by 8 cents.

Telephone and Data Systems, Inc. Price, Consensus and EPS Surprise

Telephone and Data Systems, Inc. Price, Consensus and EPS Surprise

Telephone and Data Systems, Inc. price-consensus-eps-surprise-chart | Telephone and Data Systems, Inc. Quote

Revenues

Quarterly total operating revenues were $1,321 million compared with $1,297 million in the prior-year quarter, driven by U.S. Cellular and TDS Telecom’s improved customer results. The top line surpassed the consensus estimate of $1,305 million.

U.S. Cellular

By segments, operating revenues from U.S. Cellular were $1,031 million, up 3% from $1,001 million in the year-ago quarter. Total operating expenses increased to $1,011 million from $967 million. Operating income was $20 million, down 41.2% from $34 million. Postpaid average revenue per user improved to $46.16 from $45.31, while average revenue per account grew to $119.87 from $119.42. Prepaid average revenue per user improved to $34.35 from $32.09.

TDS Telecom

Operating revenues were $231 million, down 1.3% year over year, reflecting decline in legacy voice revenue. Revenues from wireline were $169 million, down 4.5% due to legacy voice woes. Cable revenues were $62 million, reflecting an increase of 6.9%, primarily driven by growth in broadband and residential connections.

Cash Flow & Liquidity

During the first nine months of 2019, Telephone and Data Systems generated $874 million of net cash from operating activities compared with $812 million in the year-ago period. Free cash flow (non-GAAP) totaled $44 million for the quarter compared with $178 million in the prior-year period. As of Sep 30, 2019, the company had $853 million in cash and equivalents with $2,405 million of net long-term debt.

Guidance Revised

For full-year 2019, Telephone and Data Systems currently expects total operating revenues in the range of $5,075-$5,225 million compared with $5,025-$5,275. Adjusted EBITDA is projected to be $1,210-$1,340 million compared with $1,185-$1,365, and capital expenditure is estimated to be in the range of $940-$1,090 million. The company projects adjusted OIBDA in the vicinity of $1,025-$1,155 million compared with $1,000-$1,180. With efficient operational strategies, TDS Telecom is currently focused on attracting new customers and expects to deploy Cloud TV platform — TDS TV+. The company is optimizing its strength in network services to launch 5G service in Iowa and Wisconsin during the first quarter of 2020, making cost management one its main strategic priorities.

Zacks Rank & Other Stocks to Consider

Telephone and Data Systems currently carries a Zacks Rank #2 (Buy).

Other top-ranked stocks in the broader industry include The Southern Company SO, sporting a Zacks Rank #1 (Strong Buy) and Eversource Energy ES and TELUS Corporation TU, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Southern Company delivered average positive earnings surprise of 8.2% in each of the trailing four quarters.

Eversource Energy delivered average positive earnings surprise of 2.7% in the trailing four quarters, beating estimates thrice.

TELUS delivered average positive earnings surprise of 1.4% in the trailing four quarters, beating estimates twice.

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