Telephone and Data Systems Inc.
's
(
TDS
) second quarter 2012 earnings per share of 39 cents missed the
Zacks Consensus Estimate of 43 cents. Results also deteriorated 54%
year over year from 84 cents per share earned in the year-ago
quarter.
Revenues increased 3% year over year to $1,323.2 million in the
reported quarter, surpassing the Zacks Consensus Estimate of $1,310
million. Adjusted OIBDA was $293.1 million compared with $323.6
million in the year-ago quarter.
U.S.Cellular (Wireless)
Revenues from the company's wireless subsidiary
U.S. Cellular Corp.
(
USM
) rose 2.6% year over year to $1,104.4 million in the second
quarter. Service revenues grew 3% year over year to $1,029.7
million on account of higher inbound roaming and retail service
revenues along with higher smartphone sales that drove data
revenues.
Total retail service ARPU (average revenue per user) improved to
$50.99 from $48.28 in the year-ago quarter on the back of strong
adoption of smartphones and data plans. Post-paid ARPU increased to
$54.42 from $51.84 in the year-ago quarter, while churn rates
deteriorated to 1.6% from 1.4% in second quarter 2011 due to severe
competitive pricing.
U.S. Cellular lost 28,000 net retail customers in the reported
quarter, bringing the total subscriber base to approximately
5,799,000 (including 5,542,000 retail customers). Post-paid
customer losses totalled 48,000, while prepaid business registered
an addition of 20,000 customers.
TDS Telecom (Wireline)
Revenue from the wireline segment grew 5% year over year to
$208.5 million.
In the reported quarter, incumbent local exchange carriers
(ILEC) high-speed data customer base (residential and commercial)
grew 2.4% year over year to 240,800. However, ILEC physical access
lines (residential and commercial) slid 5.1% year over year to
471,200.
The competitive local exchange carrier (CLEC) high-speed data
customer base (residential and commercial) and CLEC physical access
lines (residential and commercial) declined to 22,300 and 173,000
from 28,700 and 204,800 in the year-ago quarter, respectively.
Liquidity
Telephone and Data Systems exited the second quarter with cash
and cash equivalents of $613.8 million compared with $563.3 million
at the end of fiscal 2011. Long-term debt was $1,529.8 million
compared with $1,529.9 million at year-end 2011. Free cash flow was
a negative $33.9 million, down from a positive $36.2 million in the
year-ago quarter.
Guidance
The company reiterated its guidance on the wireless segment for
fiscal 2012, the company expects service revenue in the range of
$4,050-$4,150 million and operating income in the range of
$200-$300 million. Adjusted OIBDA is estimated in the range of
$800-$900 million. The company's capital expenditure is expected to
be approximately $850 million.
For the wireline segment, the company raised its total revenue
estimates to $850-$880 million from prior projection of $810-$840
million. Adjusted OIBDA are estimated in the range of $245-$265
million compared with previous estimates of $245-$275 million.
Operating income estimates are reduced to $50-$70 million from
$55-$85 million. Depreciation, amortization and accretion expenses
and net gain or loss on asset disposals and exchanges are estimated
to be approximately $195 million, up from $190 million. Capital
expenditures are estimated in the range of $170-$190 million, up
from $150-$180 million.
Our Analysis
Telephone and Data Systems continues to benefit from its several
growth initiatives like 3G network expansion, increasing handset
offerings, adoption of the Long-Term Evolution (LTE) technology in
the wireless business, and aggressive deployment of Triple-Play
bundled wireline services. Additionally, the company's expansion of
IPTV services in new markets is also expected to aid revenue going
forward.
However, fierce competition and heavy investment in an uncertain
market condition may limit any upside to the company's earnings.
Further, regulatory issues regarding Universal Service Fund are
also likely to weigh on the company's near-term revenue growth.
We are currently maintaining our long-term Neutral rating on
Telephone and Data Systems supported by a Zacks #3 (Hold) Rank.
TELEPHONE &DATA (TDS): Free Stock Analysis
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US CELLULAR (USM): Free Stock Analysis Report
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