Crown Castle International Corporation ( CCI ) reported mixed financial results for the first quarter of 2014 where the bottom line missed the Zacks Consensus Estimate while the top line surpassed the same. However, despite the earnings miss, the company raised its outlook for fiscal 2014.
Quarterly GAAP net income came in at approximately $90.5 million or 27 cents per share as compared with $15.5 million or 5 cents per share in the year-ago quarter. However, the reported earnings per share missed the Zacks Consensus Estimate by a penny.
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Net revenue in the quarter increased 20.6% year over year to $876 million, outpacing the Zacks Consensus Estimate of $867 million. This was mainly due to improved performance by both the Site Rental and the Network Services segments.
Gross margin in the first quarter was 65.7% compared with 65.5% in the year-ago quarter. Operating income was $251.6 million as against $235.1 million in the prior-year quarter. Quarterly adjusted EBITDA was approximately $527 million, representing a year-over-year increase of 16.4%.
During the first quarter of 2014, funds flow from operations (FFO) was $338 million versus $201 million in the prior-year quarter. FFO per share in the reported quarter stood at $1.01 compared with 69 cents in the year-ago quarter. Quarterly adjusted funds flow from operations (AFFO) was $349 million compared with $263 million in the comparable year-ago quarter. AFFO per share in the reported quarter was $1.05 against 90 cents in the year-ago quarter.
At the end of the first quarter of 2014, Crown Castle had cash & marketable securities of approximately $200.5 million on its balance sheet compared with $223.4 million at the end of 2013. Total debt was approximately $11,467.9 million versus $11,490.9 million at the end of 2013. The debt-to-capitalization ratio stood at 0.62 versus 0.62 at the end of 2013.
Site Rental Segment
Quarterly revenues were $747.2 million, up 17.6% year over year. Gross margin for the segment was 69.5% compared with 71.1% in the prior-year quarter.
Network Services Segment
Quarterly revenues were $128.8 million, up 3.3% year over year. Gross margin for the segment was 43.4% versus 37.9% in the prior-year quarter.
Management Outlook for the Second Quarter of 2014
Crown Castle expects Site Rental revenues in the range of $740-$745 million. Site Rental cost of operation is projected in the band of $230-$234 million. Adjusted EBITDA is anticipated between $516 million and $521 million. Site Rental gross margin is expected between $507 and $512 million. Interest expense (inclusive of amortization) is estimated in the $142-$147 million range. FFO is estimated in the range of $283-$288 million. AFFO is projected in the $326-$331 million range. Net income is forecasted in the range of $32-$65 million or 10-19 cents per share.
Management Outlook for 2014
Crown Castle expects Site Rental revenues to be in the range of $2,983- $2,993 million. Site Rental cost of operation is projected in the $926-$936 million band. Site Rental gross margin is expected between $2,052 million and 2,062 million. Adjusted EBITDA is anticipated between $2,066 and $2,081 million. Interest expense (inclusive of amortization) is estimated in the $570-$580 million range. FFO is estimated in the range of $1,276-$1,291 million. AFFO is expected between $1,346 and $1,361 million. Net income is anticipated to be between $298 and $382 million.
Despite a highly leveraged balance sheet, we expect an impressive performance from Crown Castle International as an extensive tower portfolio, successful integration of the T-Mobile US, Inc. ( TMUS ) business, expansion of the small cell business, increased smartphone usage and aggressive deployment of 4GLTE network are likely to boost the company's results in the coming quarter. The company's extensive tower portfolio will likely safeguard its position against leading tower companies like American Tower Corporation ( AMT ) and SBA Communications Corp. ( SBAC ).
Crown Castle carries a Zacks Rank #3 (Hold).