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U.S. Cellular (USM) Q3 Earnings Miss, Revenues Rise Y/Y

Zacks Equity Research

United States Cellular Corporation USM reported mixed third-quarter 2019 financial results, wherein the top line surpassed the Zacks Consensus Estimate but the bottom line missed the same. Markedly, the company’s unlimited Total Plans boosted increase in average revenue per user (ARPU) and higher inbound roaming contributed to growth in service revenues.

Net Income

On a GAAP basis, net income for the September quarter was $23 million or 27 cents per share compared with $36 million or 41 cents per share in the year-ago quarter. The decline was primarily due to lower operating income. The bottom line missed the Zacks Consensus Estimate by 11 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

Revenues

Quarterly total operating revenues increased 3% year over year to $1,031 million, driven by higher service revenues and equipment sales. The top line surpassed the consensus estimate of $1,013 million. While revenues from service increased 2% year over year to $774 million, the same from equipment sales were up 6.2% to $257 million.

Other Details

Total operating expenses were up 4.6% year over year to $1,011 million primarily due to higher depreciation and amortization charges, and selling, general and administrative expenses. Operating income was $20 million compared with $34 million in the prior-year quarter. Adjusted EBITDA grew 5.3% year over year to $256 million.

Operating Metrics

While total cell sites in service were 6,554 at the end of the reported quarter compared with 6,506 a year ago, company-owned towers were 4,123 compared with 4,119. As of Sep 30, 2019, postpaid ARPU increased to $46.16 from $45.31 year over year, postpaid ARPA (average revenue per account) was $119.87 compared with $119.42. Postpaid churn rose to 1.38% from 1.29% reported a year ago. Prepaid ARPU increased to $34.35 from $32.09 and prepaid churn decreased to 4.03% from 4.98%.

Cash Flow & Liquidity

During the first nine months of 2019, U.S. Cellular generated $687 million of net cash from operations compared with $600 million in the year-ago period. For the same period, the company’s non-GAAP free cash flow totaled $248 million compared with $323 million in the prior-year period.

As of Sep 30, 2019, the wireless telecommunications service provider had $570 million in cash and equivalents with $1,592 million of net long-term debt.

2019 Guidance

U.S. Cellular has provided estimates for full-year 2019. The company currently expects total operating revenues in the band of $3,950-$4,050 million (previously estimated in the range of $3,900-$4,100 million).

Adjusted EBITDA is projected in the range of $925-$1,025 million (previously $900-$1,050 million). The company anticipates adjusted OIBDA in the range of $750-$850 million (previously $725-$875 million). Capital expenditures are expected between $625 million and $725 million, remaining unchanged.

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, it is on track to launch 5G service in Iowa and Wisconsin during the first quarter of 2020.

Zacks Rank & Other Stocks to Consider

U.S. Cellular currently carries a Zacks Rank #2 (Buy). A few other top-ranked stocks in the broader industry are Verizon Communications Inc. VZ, Harmonic Inc. HLIT and Viavi Solutions Inc. VIAV, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Verizon surpassed earnings estimates in each of the trailing four quarters, the average surprise being 2.2%.

Harmonic surpassed earnings estimates in each of the trailing four quarters, the average surprise being 48.3%.

Viavi surpassed earnings estimates thrice in the trailing four quarters, the average positive surprise being 15.8%.

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