U.S. Cellular (USM) Q3 Earnings Beat Estimates, Top Line Falls
United States Cellular Corporation USM reported relatively healthy third-quarter 2023 results, with the bottom line surpassing the Zacks Consensus Estimate but the top line missing the same. Declining trends in Equipment sales and lower Service revenues led to a year-over-year top-line decline.
However, solid growth of fixed wireless customers and increased tower rental revenues partially cushioned the top line. Strong emphasis on cost optimization has improved profitability despite a challenging competitive environment. The company’s flat-rate plans are witnessing healthy traction among postpaid customers. This improvised strategy is enabling USM to successfully navigate through competition in the wireless market and boost average revenue growth per user.
Net Income
Net income in the quarter was $23 million or 26 cents per share against a loss of $12 million or 15 cents per share in the year-ago quarter. The bottom line surpassed the Zacks Consensus Estimate by 20 cents. Despite top-line contraction, reduction in operating expenses boosted the bottom line.
United States Cellular Corporation Price, Consensus and EPS Surprise
United States Cellular Corporation price-consensus-eps-surprise-chart | United States Cellular Corporation Quote
Revenues
The company generated $963 million in operating revenues compared with $1,083 million in the prior-year quarter. Declining trends in postpaid and prepaid retail connections impeded revenue growth. The top line missed the Zacks Consensus Estimate by $13 million.
Service revenues decreased to $762 million from $781 million in the prior-year quarter. The figure surpassed the Zacks Consensus estimate of $754.08 million. Equipment sales registered $201 million in revenues compared with $302 million in the prior-year quarter. Net sales fell short of the Zack Consensus Estimate of $221.89 million.
The company reported solid growth in Fixed Wireless customers, which increased 57% year over year to 106,000. Total tower rental revenues were $25.4 million, up 8% year over year. Management’s effort to diversify its third-party customer base is a positive.
Handset connections were 84,000 compared to 107,000 in the year-ago quarter. Handset churn rate was 1.11%, down from 1.15%. Connected devices remained stagnant year over year at 44,000 and the churn rate declined to 2.64% from 3.40% a year ago. Total prepaid connections stood at 462,000, down from 493,000 in the year-ago quarter.
Postpaid average revenues per account improved to $130.91 from $130.27 in the year-ago quarter, with a postpaid churn rate of 1.3%, down from 1.42%. The increase was backed by a favorable plan, product offering mix and higher device protection revenues.
Postpaid average revenues per user (ARPU) rose to $51.11 from $50.21 a year ago. Prepaid ARPU was $33.44, down from $35.04 in the prior-year quarter. The prepaid churn rate decreased to 3.68% from 4.07% recorded in the year-ago quarter.
Quarterly Details
Adjusted EBITDA in the quarter stood at $263 million, up 28% year over year from $205 million in the prior-year quarter. Adjusted OIBDA rose 35% year over year to $220 million.
Total operating expenses declined to $906 million, down 17% year over year, backed by various cost-optimization initiatives. Consequently, operating income rose to $57 million against an operating loss of $15 million in the year-ago quarter.
Cash Flow & Liquidity
In the September quarter, U.S. Cellular generated $329 million of cash from operating activities compared with $73 million cash generated in the year-ago quarter. As of Sep 30, 2023, the company had $153 million in cash and cash equivalents and $2,903 million in long-term debt.
Outlook
For 2023, U.S. Cellular reiterated its guidance for service revenues in the range of $3,025-$3,075 million. Adjusted OIBDA is estimated within the range of $770-$830 million compared with $750-$850 million expected previously. The company upgraded the adjusted EBITDA guidance to $945-$1,005 million from $925-$1,025 million estimated previously. Capital expenditure is projected in the band of $600-$700 million.
Zacks Rank & Other Stocks to Consider
United Cellular currently sports a Zacks Rank #1 (Strong Buy).
Model N Inc MODN, sporting a Zacks Rank #1 at present, delivered an earnings surprise of 21.26%, on average, in the trailing four quarters. In the last reported quarter, it pulled off an earnings surprise of 45.83%.
You can see the complete list of today’s Zacks #1 Rank stocks here.
MODN provides revenue management solutions for life sciences and technology companies, including applications for configuration, price, quote, rebate management and regulatory compliance.
NVIDIA Corporation NVDA, currently sporting a Zacks Rank #1, delivered an earnings surprise of 9.79%, on average, in the trailing four quarters. In the last reported quarter, it pulled off an earnings surprise of 29.19%.
NVIDIA is the worldwide leader in visual computing technologies and the inventor of the graphic processing unit. Over the years, the company’s focus has evolved from PC graphics to artificial intelligence-based solutions that support high-performance computing, gaming and virtual reality platforms.
Arista Networks, Inc. ANET, presently carrying a Zacks Rank #2 (Buy), is likely to benefit from strong momentum and diversification across its top verticals and product lines. The company has a software-driven, data-centric approach to help customers build their cloud architecture and enhance their cloud experience. Arista has delivered an earnings surprise of 12%, on average, in the trailing four quarters.
ANET holds a leadership position in 100-gigabit Ethernet switching share in port for the high-speed data center segment. Arista is increasingly gaining market traction in 200 and 400-gigabit high-performance switching products and is well-positioned for healthy growth in the data-driven cloud networking business with proactive platforms and predictive operations.
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