United States Cellular Q3 Loss Narrower Than Expected
United States Cellular Corp. (USM), a subsidiary of Telephone and Data Systems Inc. (TDS), reported third-quarter 2014 loss per share of 26 cents, narrower than the Zacks Consensus Estimate of a loss of 27 cents. However, the bottom line also showed a marked deterioration from the year-ago quarter’s loss per share of 12 cents.
Third-quarter revenues of $1,000.4 million breezed past the Zacks Consensus Estimate of $980 million and also increased 7% from $939.2 million reported in the year-ago quarter. Quarterly Service revenues dropped 1% to $851.1 million. Revenues from Equipment sales were up by a substantial 94% to $149.4 million.
Smartphone sales remained strong and represented 57.9% penetration among postpaid customers. Total cell sites in service were 6,209 as compared to 7,687 in the third quarter of 2013.
Operating Expenses and Income
During the third of 2014, total operating expenses rose 7% to $1,051.8 million, primarily attributed to a 59% increase in the cost of equipment sold. The company reported operating loss of $51.4 million compared with $43.2 million in the third quarter of 2013.
ARPU & Churn
Quarterly postpaid ARPU (average revenue per user) increased to $56.37 from $54.64 in the year-ago quarter. Post-paid churn decreased to 1.6% from 1.7% in the third quarter of 2013. Prepaid ARPU increased to $34.40 from $28.72 in the prior-year quarter. Prepaid churn also decreased to 6.3% from 6.8% in the year-ago quarter.
Quarterly, total billed ARPU was $53.24 compared with $50.92 in the year-ago quarter. Total service revenue ARPU was $60.92 against $58.36 in the year-ago quarter.
Subscriber Statistics
United States Cellular exited the reported quarter with a subscriber base of 4,674,000 compared with 4,875,000 at the end of the year-ago quarter. Postpaid subscriber base was 4,200,000 against 4,343,000 at the end of the prior-year quarter and prepaid subscriber base was 350,000 against 370,000 at year-ago end.
In the reported quarter, United States Cellular added a net 52,000 postpaid subscribers compared with a net loss of 60,000 in the year-ago quarter. However, the company lost 2,000 prepaid customers in the same time period as against a loss of 11,000 customers in the prior-year quarter.
Liquidity
United States Cellular exited the third quarter with cash and marketable securities of $313.8 million compared with $342.1 million at the end of 2013. Quarter end total debt was $876.8 million as against $878.2 million at the end of 2013. The debt-to-capitalization ratio was 0.21, remaining flat at 2013 end.
In the third quarter of 2014, United States Cellular generated $118.8 million of cash from operations compared with a negative $152.4 million in the prior-year quarter. Quarterly free cash flow was a negative $26.7 million against a negative $350.2 million in the year-ago quarter.
Guidance
For fiscal 2014, U.S. Cellular expects total operating revenues in the range of $3.9–$4 billion, adjusted income of $375–$450 million and capital spending of approximately $600 million.
Other Stocks to Consider
United States Cellular currently carries a Zacks Rank #2 (Buy). Other stocks in the same industry also performing well include China Mobile Ltd. (CHL) and Chunghwa Telecom Co. Ltd. (CHT). Both the stocks carry a Zacks Rank #2.
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