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It has been about a month since the last earnings report for Telephone and Data Systems, Inc. TDS. Shares have added about 10.9% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is TDS due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Telephone & Data Systems Q4 Earnings and Revenues Beat
Telephone & Data Systems posted impressive financial results for the fourth quarter of 2017. The top and the bottom lines surpassed the Zacks Consensus Estimate.
GAAP net income came in at $287 million or $2.54 per share against net loss of $5 million or a loss of 5 cents in the year-ago quarter. The company reported adjusted earnings of 5 cents against the Zacks Consensus Estimate of a loss of 2 cents.
Revenues increased 2.4% year over year to $1,308 million in the reported quarter, outperforming the Zacks Consensus Estimate of $1,289 million. Operating expenses were $1,291 million, almost flat year over year. The company reported quarterly operating income of $17 million against an operating loss of $1 million in the year-ago quarter.
United States Cellular Division
GAAP net income of the company’s wireless division, United States Cellular (USM) came in at $273 million or $3.18 per share against net loss of $6 million or a loss of 7 cents in the year-ago quarter. Moreover, the company reported adjusted earnings of 5 cents against the Zacks Consensus Estimate of a loss of 8 cents.
Quarterly total revenues of $1,029 million were up 3.8% year over year. Also, it surpassed the Zacks Consensus Estimate of $1,000.8 million. Quarterly Service revenues of $755 million were almost same with the year-ago quarter. Revenues from Equipment sales increased 8% to $274 million.
Quarterly operating expenses increased 1% to $1,033 million. Operating loss was $4 million compared with operating loss of $14 million in the year-ago quarter.
Total cell sites in service were 6,460 compared with 6,415 at the end of 2016. Total company-owned towers were 4,080 compared with 4,040 at the end of 2016.
Quarterly postpaid ARPU (average revenue per user) decreased to $44.12 from $45.19 at the end of 2016. Postpaid ARPA (average revenue per account) was $118.05 compared with $120.67 at the end of 2016. Postpaid churn declined to 1.27% from 1.41% registered at the end of 2016. Prepaid ARPU decreased to $32.42 from $33.25 registered at the end of 2016. Prepaid churn decreased to 5.09% in the reported quarter from 5.44% at 2016-end.
United States Cellular exited the fourth quarter of 2017 with a subscriber base of 5,096,000 compared with 5,031,000 at the end of 2016. Postpaid subscriber base totaled 4,518,000 compared with 4,482,000 at the end of 2016. Prepaid subscriber base totaled 519,000, compared with 484,000 at the end of 2016. In the reported quarter, United States Cellular gained a net of 5,000 postpaid subscribers against a net loss of 2,000 customers in the year-ago quarter. The company’s net gain of 4,000 prepaid customers was flat year over year.
In the reported quarter, total revenues came in at $275 million, reflecting a decline of 3% year over year. Within the segment, revenues from the wireline segment came in at $176 million, up 1% year over year. Cable revenues were $54 million, reflecting an increase of 10% year over year while HMS revenues decreased 22% to $48 million.
Cash Flow & Liquidity
In 2017, Telephone & Data Systems generated $776 million of cash from operations compared with $782 million at the end of 2016. As of Dec 31, 2017, free cash flow was $91 million compared with $146 million at the end of December 2016.
The company exited the reported quarter with cash and cash equivalents and short-term investment of $719 million compared with $900 million at the end of 2016. Total debt was $2,457 million compared with $2,445 million at the end of 2016.
At the end of fourth-quarter 2017, Telephone & Data Systems had 567,700 residential wireline connections compared with 585,400 in the year-ago quarter. Of the total, voice connections were 290,600, decreasing 6.4% year over year. Broadband Connections were 228,600, down 0.4% year over year. IPTV connections were 48,600, up 7.3% year over year. Quarterly total residential revenues per connection were $46.21 compared with $44.27 in the year-ago quarter.
The company exited the reported quarter with 310,100 commercial wireline connections, down 5.9% year over year. Of the total, voice connections were 143,000, down 9.1% year over year. Broadband Connections were 20,600, declining 3.7% year over year. ManagedIP connections were 146,500, down 2.9% year over year.
Total cable connections were 315,100, up 7.8% year over year. Of the total, Broadband Connections were 153,300, up 14.7% year over year. Video connections were 101,800, up 2.8% year over year. Voice connections were 60,100, up 0.8% year over year.
Guidance for 2018 (for TDS Division)
For 2018, Telephone & Data Systems projects total operating revenues in the range of $5,015 – $5,265 million. Adjusted EBITDA is projected to be $1,075-$1,255 million while capital expenditure is estimated between $795 and$845 million. The company projects adjusted OIBDA in the range of $925-$1,105 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimate. There has been one revision higher for the current quarter. In the past month, the consensus estimate has shifted by 400% due to these changes.
Telephone and Data Systems, Inc. Price and Consensus
Telephone and Data Systems, Inc. Price and Consensus | Telephone and Data Systems, Inc. Quote
At this time, TDS has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, 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.
Based on our scores, the stock is equally suitable for growth and momentum investors while value investors may want to look elsewhere.
Estimates have been trending upward for the stock and the magnitude of this revision looks promising. Notably, TDS has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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