It has been about a month since the last earnings report for Cincinnati Bell (CBB). Shares have added about 4.9% 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 drivers.
Cincinnati Bell’s Q4 Loss Wider Than Estimated, Revenues Up Y/Y
Cincinnati Bell reported mixed fourth-quarter 2018 financial results, wherein the top line surpassed the Zacks Consensus Estimate but the bottom line missed the same.
On a GAAP basis, fourth-quarter net loss was $32.6 million or loss of 65 cents per share compared with net loss of $14.5 million or loss of 34 cents per share in the year-ago quarter. The year-over-year deterioration despite top-line growth was primarily due to transaction and integration costs, and higher interest expense owing to financing the mergers with Hawaiian Telcom and OnX. For full-year 2018, net loss was $80.2 million or loss of $1.73 per share against net income of $29.6 million or 70 cents per share in 2017.
Quarterly non-GAAP net loss came in at $27.8 million or loss of 55 cents per share compared with net loss of $3.1 million or loss of 7 cents per share in the year-earlier quarter. The bottom line lagged the Zacks Consensus Estimate of loss of 14 cents.
Quarterly revenues grew 32.5% year over year to $399 million on the back of strong demand for fiber-based products coupled with inorganic growth. The top line surpassed the Zacks Consensus Estimate of $397 million. For full-year 2018, revenues increased 29.3% year over year to $1,378.2 million.
Revenues from Entertainment and Communications segment improved 43.9% year over year to $251.9 million, primarily due to higher sales in fiber businesses. Cincinnati Bell’s merger with Hawaiian Telcom has significantly expanded its high-quality metro fiber asset portfolio to meet the increasing need for bandwidth and support the demand for IoT ecosystems.
IT Services and Hardware segment revenues increased 16.3% year over year to $153.9 million driven by contributions from OnX and Hawaiian Telcom. Cincinnati Bell’s transformation from traditional hardware reseller to service oriented IT solutions provider continues generating healthy momentum across its enhanced North American footprint. The strategic move has resulted in client diversification while optimization of higher-margin service revenue opportunities.
Other Quarterly Details
Overall operating income was $24.4 million compared with $16.9 million in the year-ago quarter. Adjusted EBITDA increased $29.5 million year over year to $107.6 million.
Cash Flow and Liquidity
For full-year 2018, Cincinnati Bell generated $214.7 million of cash from operating activities compared with $203.4 million in 2017. As of Dec 31 2018, the regional telephone company’s liquidity stood at $207 million, with no significant maturities until 2024.
Cincinnati Bell has provided its guidance for 2019 reflecting expected contributions from Hawaiian Telcom. Notably, the company expects revenues to be between $1,515 million and $1,575 million, and adjusted EBITDA in the range of $400-$410 million.
Cincinnati Bell has successfully integrated OnX and closed the merger with Hawaiian Telcom (on Jul 2, 2018). The merger takes the company a step forward toward expanding its portfolio of next-generation fiber offerings and securing value for customers and shareholders. This positions the company at the forefront of innovation in telecommunications for future growth. Cincinnati Bell has reorganized the business and manages two distinct yet complementary businesses. An IT Services business with a diverse customer reach and growing recurring revenue base, and a network business with two attractive fiber-centric footprint with growing Internet market share. The company is focused on augmenting its fiber network and increasing its IT solutions business along with a strategic approach to capital allocation.
How Have Estimates Been Moving Since Then?
Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -32.35% due to these changes.
At this time, Cincinnati Bell has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Cincinnati Bell has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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