It has been about a month since the last earnings report for Cincinnati Bell (CBB). Shares have added about 30.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Cincinnati Bell due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Cincinnati Bell Incurs Wider-Than-Expected Loss in Q3
Cincinnati Bell reported mixed third-quarter 2019 financial results, wherein the top line declined year over year but GAAP net loss narrowed.
On a GAAP basis, net loss for the September quarter was $16.2 million or loss of 32 cents per share compared with net loss of $20.3 million or loss of 41 cents per share in the year-ago quarter. The improvement was primarily due to higher operating income.
Non-GAAP net loss came in at $15.4 million or loss of 31 cents per share compared with net loss of $7.9 million or loss of 16 cents per share in the prior-year quarter. The bottom line was wider than the Zacks Consensus Estimate of a loss of 15 cents.
Quarterly revenues fell 1.1% year over year to $382.5 million primarily due to lower revenues at Entertainment and Communications unit. The top line, however, surpassed the consensus estimate of $381 million.
Revenues from Entertainment and Communications declined 1.9% year over year to $248.5 million, with Cincinnati contributing $171 million and Hawaii $78 million. Customers transitioning away from lower margin linear video programming in favor of over-the-top solutions resulted in revenue decrease in both the markets. Adjusted EBITDA was $93 million, up 2% from year-ago quarter.
IT Services and Hardware revenues were $140.5 million compared with $141.1 million in the year-ago quarter. Adjusted EBITDA was $12 million for the third quarter, consistent year over year excluding the impact of GE’s insourcing initiatives.
Overall operating income was $22.8 million compared with $14.5 million in the year-ago quarter, driven by lower transaction and integration costs. Adjusted EBITDA increased 3.2% year over year to $101.8 million.
Cash Flow & Liquidity
During the first nine months of 2019, Cincinnati Bell generated $188.9 million of cash from operating activities compared with $122.8 million in the year-ago period. As of Sep 30, 2019, the regional telephone company’s non-GAAP net debt totaled $1,920.9 million.
2019 Guidance Reiterated
Cincinnati Bell has reiterated its guidance for full-year 2019, indicating expected contribution from Hawaiian Telcom. Notably, the company continues to anticipate revenues between $1,515 million and $1,575 million, and adjusted EBITDA in the range of $400-$410 million.
Cincinnati Bell is focused on transforming itself from a legacy copper-based telecommunications company to a technology company with contemporary fiber assets servicing both consumer and business customers with flexible data, video, voice and IP solutions. With a well-designed marketing program, popular brand value and strong reputation of offering high-quality service, the company expects to increase its Entertainment and Communications revenues. Also, the expansion of its geographic footprint in IT services has brought enhanced scale and client diversification, supporting its transformation to a hybrid IT solutions provider.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -24% due to these changes.
Currently, Cincinnati Bell has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Cincinnati Bell has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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