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U.S. Cellular (USM) Misses on Q2 Earnings, Cuts Revenue View

Zacks Equity Research

United States Cellular Corporation USM reported lackluster second-quarter 2019 financial results, wherein the top and the bottom lines missed the respective Zacks Consensus Estimate.

Net Income

On a GAAP basis, net income for the June quarter was $31 million or 35 cents per share compared with $49 million or 56 cents per share in the year-ago quarter due to lower operating income. The bottom line missed the Zacks Consensus Estimate by 7 cents.

United States Cellular Corporation Price, Consensus and EPS Surprise


United States Cellular Corporation Price, Consensus and EPS Surprise

United States Cellular Corporation price-consensus-eps-surprise-chart | United States Cellular Corporation Quote


Quarterly total operating revenues remained almost flat year over year at $973 million on higher service revenues. However, the momentum was more than offset by lower revenues from equipment sales. The top line lagged the consensus estimate of $1,002 million.

While revenues from service grew 2.3% year over year to $757 million, the same from equipment sales were down 7.3% to $216 million primarily due to decline in gross additions.

Other Details

Total operating expenses were up 2.7% year over year to $943 million on account of higher depreciation and amortization charges. Operating income was $30 million compared with $56 million in the prior-year quarter. Adjusted EBITDA grew 3.6% year over year to $257 million.

Operating Metrics

While total cell sites in service were 6,535 at the end of the reported quarter compared with 6,478 a year ago, company-owned towers were 4,116 compared with 4,105.

As of Jun 30, 2019, postpaid ARPU (average revenue per user) grew to $45.90 from $44.74, postpaid ARPA (average revenue per account) was $119.46 compared with $118.57. Postpaid churn rose to 1.23% from 1.19% reported a year ago. Prepaid ARPU increased to $34.43 from $32.32 and prepaid churn decreased to 4.20% from 4.83%.

Cash Flow & Liquidity

During the first six months of 2019, U.S. Cellular generated $476 million of net cash from operations compared with $365 million in the year-ago period. For the same period, the company’s non-GAAP free cash flow totaled $194 million compared with $192 million in the prior-year period.

As of Jun 30, 2019, the wireless telecommunications service provider had $528 million in cash and equivalents, with $1,596 million of net long-term debt.

2019 Guidance

U.S. Cellular provided estimates for 2019. The company has lowered its revenue outlook only and currently expects total operating revenues to be $3,900-$4,100 million (down from prior estimated $4,000-$4,200 million) due to lower revenues from equipment sales.

Adjusted EBITDA is projected to be $900-$1,050 million. The company anticipates adjusted OIBDA of $725-$875 million. Capital expenditures are expected to be between $625 million and $725 million.

Going Forward

U.S. Cellular continues to strengthen its customer base while improving churn management. It is progressing with its 5G and network modernization initiatives. The company intends to offer the best wireless experience to customers by providing superior quality network and national coverage.

Further, the company acquired new licenses at millimeter wave auctions, giving it access to high-frequency spectrum required to deliver high speed and low latency capabilities of 5G to customers. Markedly, the millimeter wave provides at least 300 MHz of spectrum in markets that serve 97% of its customer base. U.S. Cellular expects to begin commercial launch of 5G services in 2020.

Zacks Rank & Other Stocks to Consider

U.S. Cellular currently sports a Zacks Rank #1 (Strong Buy). A few other top-ranked stocks in the broader industry are Harmonic Inc. HLIT, Comtech Telecommunications Corp. CMTL and Nokia Corp. NOK. While Harmonic and Comtech sport a Zacks Rank #1, Nokia carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Harmonic surpassed earnings estimates in each of the trailing four quarters, the average surprise being 119.9%.

Comtech surpassed earnings estimates in each of the trailing four quarters, the average surprise being 216.7%.

Nokia surpassed earnings estimates thrice in the trailing four quarters, the average positive surprise being 89.3%.

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